12930 D 1230 12 19 Calculate WACC given the following infor

12.930 ) D) 12.30% 12% 19. Calculate WACC given the following information (BT means before tax): Tax bracket is 40%, BTka= 6%, k,-10%, and k, = 13% Total assets Total debt Total preferred stock. = Total common stock = 900,000 = $2,000,000 1,000,000 100,000 A) B) C) D) 0.82% 8% 8.15% 8.25% Use the following to answer questions 20-22: DE Inc.\'s current (and optimal) capital structure is 40% debt, 10% preferred stock, ommon equity. CDE is in the 40% tax bracket. The company can issue up to $20,00 new bonds at par with a 7% coupon rate, any subsequent amount must carry a 200 n comnensate inu

Solution

Question 19 Answer : Option C) 8.15% Explanation WACC = % of Financing in Common Stock X Cost of common Stock + % of Financing in Preferred Stock X Cost of Preferred Stock + % of Financing in debt X Cost of Debt X(1- Tax Rate) WACC = ((9/20) X 0.13 )+( (1/20) X 0.10 )+ ((10/20) X0.06 X(1-0.4)) WACC = (0.45*0.13) + (0.05*0.10)+(0.50 *0.036) WACC = 0.0585 + 0.005 + 0.018 WACC = 0.0815 or 8.15% Question 29 Answer: Option C. 42,141 Explanation PV of Annuity = 6000 X (PV factor of Annuity at 10 years ) PV of Annuity = 6000 X 7.02358 PV of Annuity = 42,141