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Acmes target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. The before-tax cost of debt is 12%. The
Acmes target capital structure is 20 percent debt, 20 percent preferred stock, and 60 percent common equity. The before-tax cost of debt is 12%. The firms cost of preferred stock is 12.6%. Their beta is 1.2, the risk-free rate is 10%, and the market rate of return is 15%. The firm's marginal tax rate is 30 percent. What is Acme's cost of retained earnings using the CAPM approach? What is the WACC?
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