Feast Inc
Subject:FinancePrice:2.86 Bought3
Feast Inc. plans to maintain its optimal capital structure of 40% debt, 10% preferred stock, and 50% common equity indefinitely. The pre-tax required return on each component source of capital is as follows: debt ------ 8%; preferred stock ------ 12%; common equity ------ 16%. Assuming a 40% marginal tax rate, what after-tax weighted average cost of capital can we infer for the firm?
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- Cost of Debt = Required Return (1 - tax rate)
- Cost of Debt = 8% (1 - 40%)
- Cost of Debt = 4.8%
- Preferred Stock = 12%
- Common Stock = 16%
- WACC = 4.8%(40%) + 12%(10%) + 16%(50%)
- WACC = 1.92% + 1.2% + 8%
- WACC = 11.12%
