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Question - Company X is interested in calculating it weighted-average cost of capital. Company X has a current financial structure that is composed of 50% debt, 40% common stock, and 10% preferred stock. Ignore the effects of cost of retained earnings. The beta of Company X stock is 0.7, and the current risk-free rate of return is 4%. The market risk premium is 6%. The preferred dividend on Company X preferred stock is set at P2.25, and the net issuance price per share (which happens to be the same as the current price per share) of preferred stock is P30. Debt issued by Company X yields an 11% stated interest rate to investors. The marginal tax rate for Company X is 40%. What is the weighted-average cost of capital for Company X?
a. 0.0660
b. 0.0733
c. 0.0820
d. 0.0743
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