Bioplex Corporation has a capital structure of 10% debt, 30% preferred stock, and 60% equity. The firm's cost of equity is 13%, cost of preferred is 9%, and the pre-tax cost of debt is 6%. If the corporate tax rate is 21%, what is the firm's cost of capital?

Question

Business

Abagail

10 February, 02:44

Bioplex Corporation has a capital structure of 10% debt, 30% preferred stock, and 60% equity. The firm's cost of equity is 13%, cost of preferred is 9%, and the pre-tax cost of debt is 6%. If the corporate tax rate is 21%, what is the firm's cost of capital?

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Armani Bowman · Answer 1

The cost of capital is 10.974%

Explanation:

The capital of a firm is made up of debt and equity component. The weighted average cost of capital or WACC of a firm is the cost of all the firm's capital components combined and can be referred to as simply the cost of capital.

The cost of capital or WACC for Bioplex Corporation is,

WACC = 0.1 * (1-0.21) * 0.06 + 0.3 * 0.09 + 0.6 * 0.13

WACC = 0.10974 or 10.974%