You are estimating your firms WACC to evaluate potential investments. The firm has outstanding preferred stock trading for $40 that pays an annual dividend of $3. You estimate the firms common equity beta at 1.0 and the expected return on the market at 10%. The risk-free rate is 1%. The firms current bonds are trading at a YTM of 8% and the firms marginal tax rate is 35%. The firms target capital structure is 30% common equity, 8% preferred stock, and 62% debt. What is the firms WACC? LO1

You are estimating your firms WACC to evaluate potential investments. The firm has outstanding preferred stock trading for $40 that pays an annual dividend of $3. You estimate the firms common equity beta at 1.0 and the expected return on the market at 10%. The risk-free rate is 1%. The firms current bonds are trading at a YTM of 8% and the firms marginal tax rate is 35%. The firms target capital structure is 30% common equity, 8% preferred stock, and 62% debt. What is the firms WACC? LO1

7.63%

11.2%

6.82%

7.5%