The following information comes from the Galaxy Construction balance s

The following information comes from the Galaxy Construction balance sheet.

The value of common stock is $10,000, retained earnings equals $7,000, total common equity equals $17,000, preferred stock has a value of $3,000, and long-term debt totals $15,000. If the cost of debt is 8.00%, preferred stock has a cost of 10.00%, common stock has a cost of 12.00%, and the firm has a corporate tax rate of 30%, calculate the firm’s WACC adjusted for taxes.
A) 10.11%
B) 10.00%
C) 9.09%
D) There is not enough information to answer this question.

ANSWER

Answer: C
Explanation: C) WACCadj = × Rd × (1 – Tc) + × Rps + × Re.
WACCadj = × 8% × (1 – .30) + × 10% + × 12% = 9.09%.