Bally's target capital structure calls for 40% debt, 3% preferred stock and 48% common equity. It's before tax cost of debt is 15%; it's after tax cost of debt is 15%(0.5) = 7.5%; its cost of preferred stock is 15.3; its cost of common equity from retained earnings is 18.5%; and its marginal tax rate is 40%. What is the WACC when all of the new common equity comes from retained earnings?
a. Write the appropriate WACC equation
b. Solve for the WACC. SHOW YOUR WORK!