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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 | ||
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