Respuesta :
Answer:
WACC is 9.69%
Explanation:
The formula for WACC in this scenario is adapted to show preferred stock, hence WACC formula is given below:
WACC=E/V*Ke+P/V*Kp+D/V*Kd*(1-tax)
E implies equity value given as $50 million
P is the preferred stock value which is $10 million
D is the debt value which is $20 million
V is the sum of the finances available to Reactive Power Generation company and it is calculated as $50 million+$20 million +$10 million =$80 million
Ke is the cost of equity of 12%
Kd is the cost of debt 6%
Kp is the cost of preferred stock of 8%
tax rate is 21% or 0.21
WACC=50/80*12%+10/80*8%+20/80*6%*(1-0.21)
WACC=(50/80*12%)+(10/80*8%)+(20/80*4.74% )
WACC=9.69%
Note that I changed cost of debt to after-tax cost of debt before finally computing the WACC.
