Problem:
Capital Co. has a capital structure, based on current market values, that consists of 40 percent debt, 19 percent preferred stock, and 41 percent common stock.
Required:
Question: If the returns required by investors are 8 percent, 10 percent, and 19 percent for the debt, preferred stock, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent.
Note: Be sure to show how you arrived at your answer.