Computing after-tax cost of financing

Assignment Help Accounting Basics

Reference no: EM1362967

I am not sure how they are coming up with the figure for the after-tax cost of financing. Could you please explain this in step by step detail?

Weighted average cost of capital:

Example: The target capital structure for QM Industries is 43% common stock, 13% preferred stock, and 44% debt. If the cost of common equity for the firm is 18.6%, the cost of preferred stock is 10.4%, the before-tax cost of debt is 7.8%, and the firm's tax rate is 35%, what is QM's weighted average cost of capital?

For debt the weight is 0.44, after tax cost is 0.051, and the product is 0.02244. I do not understand how to calculate the after-tax costs. How is this done?

Reference no: EM1362967

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