Answer to Question #50875 in Finance for asif
pays a dividend of $4 per share, and the stock sells for $40. What is the cost of preferred
3. Calculating WACC. Suppose Micro SpinoffsвЂ™s cost of equity is 12.5 percent. What is its
WACC if equity is 50 percent, preferred stock is 20 percent, and debt is 30 percent of total
Cost of preferred stock = D/P = 4/40 = $0.1.
3. Cost of equity is 12.5 percent, equity is 50 percent, preferred stock is 20 percent, and debt is 30 percent of total capital.
WACC = E/V*Re + D/V*Red*(1 - Tc), where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
As values E and D are not provided, WACC can't be calculated.
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