Great Expectations, a wedding and maternity clothing manufacturer, has a cost of equity of 16 percent and a cost of preferred stock of 14 percent. Its before tax cost of debt is 12 percent, and its marginal tax rate is 40 percent Assume that the most recent balance sheet shown here reflects the optimal capital structure. Calculate Great Expectations after tax WACC.
Great Expectatios Balance Sheet
Dec 31, 2015
Cash 50,000
Accounts Recievable 90,000 Long Term Debt 600,000
Inventories 300,000 Preferred Stock 250,000
Plant and Equipment, net 810,000 Common Stock 400,000
Total Assets 1,250,000 Total Liabilities and equity 1,250,000