Problema company has a target capital structure of 60, Ask an Expert

Accounting

Problem:

A company has a target capital structure of 60% common stock, 5% preferred stock and 35% debt. Cost of equity is 12%, cost of preferred stock is 5%, and pretax cost of debt is 7%. The relevant tax rate is 35%.

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Question: What is the WACC? Why doesn't the company use more preferred stock financing instead of debt?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168914

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