Problem:

You were hired as a consultant to a Company, whose target capital structure is 32% debt, 10% preferred, and 58% common equity. The interest rate on new debt is 8.40%, the yield on the preferred is 5.85%, the cost of common from retained earnings is 13.20%, and the tax rate is 33.00%. The firm will not be issuing any new common stock.

Required:

Question 1: What is the WACC?

Explain comprehensively and provide step by step solution.