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19 August, 20:41

Healthy Snacks, Inc. has a target capital structure of 55 percent common stock, 5 percent preferred stock, and 40 percent debt. Its cost of equity is 14.3 percent, the cost of preferred stock is 8.9 percent, and the pretax cost of debt is 8.1 percent. What is the company's WACC if the applicable tax rate is 35 percent

A) 10.83 percent.

B) 9.61 percent.

C) 10.34 percent.

D) 9.29 percent.

E) 10.43 percent.

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  1. 19 August, 22:41
    0
    WACC = 10.43 %

    Explanation:

    given data

    common stock = 55 percent

    preferred stock = 5 percent

    debt = 40 percent

    cost of equity = 14.3 percent

    cost of preferred stock = 8.9 percent

    pretax cost of debt = 8.1 percent

    tax rate = 35 percent

    to find out

    company's WACC

    solution

    weight cost

    common stock 0.55 0.143

    preferred stock 0.05 0.089

    debt 0.4 0.0527

    WACC 10.43 %

    here debt cost is = 0.081 * (1 - 0.35) = 0.0527

    and WACC = 0.55 * 0.143 + 0.05 * 0.089 + 0.4 * 0.0527 = 10.43 %
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