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B corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is
B corporation has a target capital structure of 75 percent common stock, 5 percent preferred stock, and 20 percent debt. Its cost of equity is 10.9 percent, the cost of preferred stock is 5.1 percent, and the pretax cost of debt is 5.8 percent. The relevant tax rate is 35 percent. a. What is the companys WACC? b. The company president has approached you about the companys capital structure. He wants to know why the company doesnt use more preferred stock financing, since it costs less than debt. What would you tell the president?
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