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Suppose that Target (TGT) has common equity of $40b and $30b in long term debt and $10 b of preferred equity on its books. Required
Suppose that Target (TGT) has common equity of $40b and $30b in long term debt and $10
b of preferred equity on its books. Required rate of return on these funds are 14%,10%, and 12%
respectively. Market values of the common equity and long-term debt are $50b and $35b
respectively. Market value of preferred equity is the same as its book value. Estimate WACC for
the company given that its effective tax rate is 20%.
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