You are estimating your firms WACC to evaluate potential investments. The firm has outstanding preferred stock trading for $55 that pays an annual dividend of $2. You estimate the firms common equity beta at 1.3 and the expected return on the market at 12%. The risk-free rate is 2%. The firms current bonds are trading at a YTM of 9% and the firms marginal tax rate is 36%. The firms target capital structure is 58% common equity, 5% preferred stock, and 37% debt. What is the firms WACC? LO1

11.01%

7.75%

10.2%

8.91%