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9-20. Great Expectations, a wedding and maternity clothing manufacturer, has a cost of equity of 16 percent and a cost of preferred stock of 14
9-20. Great Expectations, a wedding and maternity clothing manufacturer, has a cost of equity of 16 percent and a cost of preferred stock of 14 percent. Its before-tax cost of debt is 12 percent, and its marginal tax rate is 40 percent. Assume that the most recent balance sheet shown here reflects the optimal capital structure. Calculate Great Expectations after-tax WACC.
Great Expectations Balance Sheet Dec. 31, 2015
Assets Liabilities and Equity Cash 50.000 Accounts Receivable 600,000 90,000 Long-Term Debt Inventories 250,000 300,000 Preferred Stock 400,000 Plant and Equipment, net 810,000 Common Stock Total Assets 1,250,000 Total Liabilities and Equity 1.250.000Step by Step Solution
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