Question
(Show all your work 6 points each ) 4. The balance sheet for Stratton Co. shows $400,000 in common equity, $100,000 in preferred stock, and
(Show all your work 6 points each)
4. The balance sheet for Stratton Co. shows $400,000 in common equity, $100,000 in preferred stock, and $500,000 in long-term debt. The company has 20,000 common shares outstanding at a market price of $65 per share. The firms 4,000 shares of preferred stock are currently priced at $50 per share. The firm has 500 bonds outstanding selling at par value ($1,000). The companys before-tax cost of debt is 6%. The cost of common stock and preferred stock are estimated to be 10% and 7% respectively. If the firms marginal tax rate is 40%, what is the firms weighted average cost of capital (WACC)?
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