Question: Target % in Capital Structure Component Cost (pre-tax) Component Cost (after-tax) Weighted Component Cost Debt 25.00% Preferred Stock 8.00% Equity 67.00% Tax Rate = 35.00%

Target % in Capital Structure Component Cost (pre-tax) Component Cost (after-tax) Weighted Component Cost
Debt 25.00%
Preferred Stock 8.00%
Equity 67.00%
Tax Rate = 35.00% WACC =
Outstanding Bond Preferred Stock Info Common Stock Info
(Annual Coupons) Preferred Divided $2.00 Current Dividend $2.00
Time to Maturity (years) 10 Current Market Price $45.00 Current Price $42.00
Coupon Rate APR 6.00% Preferred Yield Expected Growth in Dividends 2.00%
Face Value $1,000 Expected Return on Equity
Current Market Price $1,240
YTM

Based on the information in the table, what is the after tax cost of debt?

4.44%
2.06%
3.16%
0.51%

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