Hi kbhutana,

You answered my question earlier today and I understand everything but one part. I have attached your file you sent me. Can you please explain where you got the values you used in the formula to calculate Market Value/Present Value of $1,026.25? I don't understand where all your numbers are coming from and we also have used the PV function in the past, but this isn't working to get me that number either. Please advise.

SOLUTION: Calculation of Cost of Debt: Coupon Rate Nper Market Value / Present Value Par Value / Future Value (assumed) PMT (Par Value * Coupon Rate) 3.44% 24.00 $ 1,026.25 $ 1,000.00 $ 34.38 Using excel formula, Cost of Debt (Rate) Annual Cost of Debt 3.28% 6.56% After tax Cost of Debt = 6.56% * (1 - 40%) After tax Cost of Debt 3.93% Cost of Preferred Stock = Dividend / Net Proceeds Net Proceeds = Market Price - Flotation Cost Net Proceeds = $98.35 - (8% * $98.35) Net Proceeds $ 90.48 Cost of Preferred Stock = $8 / $90.48 Cost of Preferred Stock 8.84% Cost of Equity = Rf + Beta * Market Risk Premium Cost of Equity = 4% + 1.22 * 6% Cost of Equity 11.32% Calculation of WACC: Source Weight Debt 40% Preferred Stock 10% Common Equity 50% Weighted Average Cost of Capital Cost 3.93% 8.84% 11.32% Product 1.57% 0.88% 5.66% 8.12%