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Step 1: Computation of WACC (Weighted Average Cost of Capital)
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Cost of Debt
Cost of Preferred Shares
Cost of Common Shares
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Interest Rate
6.00%
Dividend Per Share
$ 13.00 Risk-free rate3.50%
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Tax Rate20.00%Share Price $ 132.00 Market Risk2.00%
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Cost of Debt
4.80%
Preferred Share Cost
9.85%
Market Risk Premium
-1.50%
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Beta2.10
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Cost of Common Equity
7.70%
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Computation of WACC
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Debt
Preferred Shares
Common Shares
Total
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Market Values
$ 15,000,000.00 $ 10,000,000.00 $ 35,000,000.00 $ 60,000,000.00
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Percentages:
25.00%16.67%58.33%100.00%
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Costs4.80%9.85%7.70%
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Weighted
1%2%4%
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WACC7.3331%
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