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Baskin Robbin Corporation's capital structure is 30% debt, 10% preferred, and 60% common equity. The company’s...

Baskin Robbin Corporation's capital structure is 30% debt, 10% preferred, and 60% common equity. The company’s cost of debt is 7%, cost of preferred is 8%, and cost of equity is 11%. The firm's marginal tax rate is 40 percent. What is the weighted average cost of capital for Baskin?

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Ans 8.66%

Investment Tax Cost After Tax Cost (Tax Cost*(1-Tax Rate) Average Cost
Debt                                                             30 7% 4.20%                           1.26
Preferred Stock                                                             10 8.00% 8.00%                           0.80
Common Stock                                                             60 11.00% 11.00%                           6.60
                                                          100 Total Cost                           8.66

jeff jeffy answered 1 year ago
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