Source of common equity, What is the firm's weighted

Source of common equity

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Reference no: EM13979464

Barton Industries expects that its target capital structure for raising funds in the future for its capital budget will consist of 40% debt, 5% preferred stock, and 55% common equity. Note that the firm's marginal tax rate is 40%. Assume that the firm's cost of debt, r_d, is 8.5%, the firm's cost of preferred stock, r_p, is 8% and the firm's cost of equity is 12.5% for old equity, r_s, and 13.12% for new equity, r_e. What is the firm's weighted average cost of capital (WACC₁) if it uses retained earnings as its source of common equity?

Reference no: EM13979464

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