Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 36

MicroTech Corporation is subject to a 35 percent income tax rate. Given the following information about the firm’s capital structure, calculate the corporation’s weighted-average cost of capital (WACC):

Source of Funds	Market Value	Required Rate of Return
Long-term debt	$40 million	7.0%
Preferred stock	$20 million	9.0%
Common stock	$60 million	12.0%

Step 1 of 2

The computation of weighted average cost of capital is shown below:-