A firm is financed with 413 debt, 410 common equity and 184 preferred equity. The before-tax cost of debt is 5%, the firm's cost of common equity is 15%, and that of preferred equity is 10%. The marginal tax rate is 30%. What is the firm's weighted average cost of capital?
I found the following on coursehero.com but it is slightly different:
A firm is financed with 30% debt, 60% common equity and 10% preferred equity. The before-tax cost of debt is 5%, the firm's cost of common equity is 15%, and that of preferred equity is 10%. The marginal tax rate is 30%. What is the firm's weighted average cost of capital? A. 10.05% B. 11.05% C. 12.5% D. None of the above
WACC = rD (1 - TC)(D/V) + rP (P/V) + rE (E/V)
(5)(1 - 0.3)(0.3) + (10)(0.1) + (15)(0.6) = 11.05