Rogers’ Rotors has debt with a market value of $250,000, preferred sto

Rogers’ Rotors has debt with a market value of $250,000, preferred stock with a market value of $50,000, and common stock with a market value of $750,000.

If debt has a cost of 7%, preferred stock a cost of 9%, common stock a cost of 13%, and the firm has a tax rate of 30%, what is the WACC?
A) 8.64%
B) 9.12%
C) 9.33%
D) 10.88%

ANSWER

Answer: D
Explanation: D) WACC = × Rd × (1 – Tc) + × Rps + × Re.
WACC = × 7% × (1 – .30) + × 9% + × 13% = 10.88%.