32,500 shares of common stock outstanding at a price per share of $80 and a rate of return of 12.95 percent. The firm has 7,350 shares of 7.90 percent preferred stock outstanding at a price of $95.50 per share. The preferred stock has a par value of $100. The outstanding debt has a total face value of $407,000 and currently sells for 111.5 percent of face. The yield to maturity on the debt is 8.11 percent and the bonds have a coupon rate of 5.6 percent. What is the firm's weighted average cost of capital if the tax rate is 40 percent?

The weighted Average cost of Capital is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.

Market of securities

Common stock = $80 × 32,500= 2,600,000.

Preferred stock = $95.50 × 7,350= 701,925.00

Bond = 407,000/100 × 111.5= 453,805.00

Cost of each capital type

Common stock= 12.95

Preferred stock = (7.90%× 100)/95.50= 8.3%

Bond= 8.11%× (1-0.4)=4.87%

WACC

Type Market Value Cost Market value cost

Common stock 2,600,000. 12.95% 336,700.00

Preferred 701,925.00 8.3% 58,065.00

Bond 453,805.00 4.87% 22,100.30

Total 3,755,730.00 416,865.30

WACC = (416,865.30 / 3,755,730.00) × 100

= 11.1%

WACC = 11.1%