Question: Dingel Inc. is attempting to evaluate three alternative capital structures A, B, and C. The following table shows the three structures along with relevant cost

Dingel Inc. is attempting to evaluate three alternative capital structures €“ A, B, and C. The following table shows the three structures along with relevant cost data. The firm is subject to a 40% tax rate. The risk-free rate is 5.3% and the market return is currently 10.7%.

a. Calculate the after-tax cost of debt for each capital structure
b. Calculate the cost of preferred stock for each capital structure.
c. Calculate the cost of common stock for each capital structure.
d. Calculate the weighted average cost of capital (WACC) for each capital structure.
e. Compare the WACCs calculated in part (d) and discuss the impact of the firm€™s financial leverage on its WACC and its related risk

Capital Structure Item Debt (S million) Preferred Stock (S million)0 Common Stock (S million) 65 45 10 45 100 35 10 35 100 Total capital (S million) 100 Debt (yield to maturity) Preferred stock dividend Preferred stock (price) Common stock beta 7.5% $2.80 $30.00 1.10 8.5% S2.20 $21.00 1.25 7.0% 0.95

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