Suppose Hollande Company uses debt, preferred stock and common stock to finance its capital budget and uses CAPM to compute its cost of equity. The capital structure is 25% debt, 32% preferred stock and 43% common stock. Before tax cost of debt is 4.35 % and tax rate is 21%. The cost of preferred stock is 11.25%. The Risk free rate = 2.25% and market risk premium = 9.57%. Hollande Company has a beta of 1.51. 

Write a user defined function to compute the WACC.

Answer rating: 100% (QA)

Step 1 Calculate the aftertax cost of debt Beforetax cost of debt 435 Tax rate 21 Aftertax cost of d... View the full answer