Reference no: EM132726408

Problem 1: A firm has three components in its capital structure: debt, preference shares and ordinary shares. The before-tax cost of debt is 4.0%, the before-tax cost of preference shares is 7.2% and the before-tax cost of ordinary shares is 12.8%. The proportion of debt in the capital structure is 15%, the proportion of preference shares is 21% and the proportion of ordinary shares is 64%. The corporate tax rate is 30%. What is the firm's Weighted Average Cost of Capital?

Select one:

a. 7.21%
b. 9.67%
c. 10.30%
d. 10.12%