Q4. Long term capital structure of company KL is given below:

Sources of capital Book value ($ 000)

Debts 60,000

Preferred stock 15,000

Common stock 17,500

Retained earnings 37,500

The overall interest rate is 10%, the dividend for common stock is $1.4 per share and $1.5 for preferred stock per share, The preferred stock price is $20/share and common stocks are currently trading for $18/share. Net income of the Company is expected to be paid out 40% as dividend and 60% will be added to the retained earnings. The IRR of the company is 15%. The corporate tax rate and average income tax rate are 20% and 25 % respectively. Calculate and interpret the WACC of the Company.