Question
Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt,
Tiger Valley Inc recently had you estimate the cost of each of its capital sources. The firm typically finances with a combination of long-term debt, preferred stock, and common equity. The firm has a target of 70% debt financing and 10% preferred stock financing with the remainder of funds being raised from common equity. The after-tax cost of preferred stock has been estimated to be 8.4% while the after-tax cost of long-term debt has been estimated to be 5.6%. Due to its riskiness, the after-tax cost of equity has been estimated at a much higher rate of 14.2%. Estimate the firms WACC.
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