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# Answer to Question #50875 in Finance for asif

Question #50875
2 Cost of Preferred Stock. Micro Spinoffs also has preferred stock outstanding. The stock
pays a dividend of $4 per share, and the stock sells for$40. What is the cost of preferred
stock?
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
capital?
1
2015-02-26T09:27:23-0500
2. D = $4 per share, P =$40.
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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