Reference no: EM132597231

Question 1: Capital Co. has a capital structure, based on current market values, that consists of 50 percent debt, 10 percent preferred shares, and 40 percent common shares. If the returns required by investors are 8 percent, 10 percent, and 15 percent for debt, preferred equity, and common stock, respectively, what is Capital's after-tax WACC? Assume that the firm's marginal tax rate is 40 percent.

50% debt

10% preferred shares

40% common shares

Returns required by investors/costs of debt = 8%

Returns required by investors/costs of preferred equity = 10%

Returns required by investors/costs of common stock = 15%

Firms marginal tax rate = 40%