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Bartlett Company's target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax...
Bartlett Company's target capital structure is 40% debt, 15% preferred, and 45% common equity. The after-tax cost of debt is 6.00%, the cost of preferred is 7.50%, and the cost of common using reinvested earnings is 12.75%. The firm will not be issuing any new stock. You were hired as a consultant to help determine their cost of capital. What is its WACC?
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Expert Solution
Ans WACC = 9.26%
| Investment | After Tax Cost | Average Cost | ||
| Debt | 40 | 6.00% | 2.40 | |
| Preferred Stock | 15 | 7.50% | 1.13 | |
| Common Equity | 45 | 12.75% | 5.74 | |
| 100 | Total Cost | 9.26 |
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