With a tax rate of 40% and a total capital structure of $10,000,000. We need to calculate the WACC for the following two scenarios.
A) Composition of capital structure
debt 10.0 % with a cost of 8%
preferred equity 20.0 % with a cost of 10%
common equity 70.0 % with a cost of 6%
B) Composition of capital structure
debt 60.0 % with a cost of 8%
preferred equity 10.0 % with a cost of 10%
common equity 30.0 % with a cost of 3%
Which is the best for option for the company? Explain.