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QUESTION
A firm has an optimal capital structure that is 50% common equity, 40% DEBT,and 10% preferred stock. Their pretax cost of equity is 12%.
A firm has an optimal capital structure that is 50% common equity, 40% DEBT,and 10% preferred stock. Their pretax cost of equity is 12%. Its pretax cost of preferred equity is 7%, and its pretax cost of debt is also 7%. If the corporate tax rate is 35%, what is the weighed average cost of capital.I am not sure if I need to calculate the tax rate in my formula somewhere.
