Companies obtain the funds needed for capital investments


Question: Companies obtain the funds needed for capital investments from multiple sources. To evaluate potential projects, the cost of the different sources of capital must be accounted for in the interest rate used to discount cash flows and measure project profitability. Consider a large multinational company with an effective income tax rate of 49.24%. The percentage of long-term debt in its capital structure is 49%, and its before-tax annual cost is 9.34%. In its capital structure, the firm also has 13% preferred stock paying 8.22% per year and 38% common equity valued at 16.5% per year. What is the weighted average cost of capital for this firm (after taxes)?

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Finance Basics: Companies obtain the funds needed for capital investments
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