8. The basic WACC equation

The calculation of WACC involves calculating the weighted average of the required rates of return on debt and equity, where the weights equal the percentage of each type of financing in the firms overall capital structure.

rs

rd

rps

rstd

is the symbol that represents the required rate of return on preferred stock in the weighted average cost of capital (WACC) equation.

Wyle Co. has $2.7 million of debt, $2 million of preferred stock, and $1.2 million of common equity. What would be its weight on preferred stock?

0.20

0.34

0.31

0.46