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Weighted average cost of capital The target capital structure

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Weighted average cost of capital The target capital structure for Jowers Manufacturing is 51% common stock, 17% preferred stock and 32%debt. If the cost of common equiity for the firm is 19.3% the cost of preferred stock is 11.4% and the before tax cost of debt is 10.1% what os Jowers cost of capital. The firms tax rate is 34% Jowers WACC is ?

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Customer: replied 5 years ago.


I still can not get the correct answer I have tried the examples like this, but my answer is not correct, so I need assistance with the answer

Sorry, please disregard the above file. I uploaded the wrong one. I hope this will explain it: You multiply the percentages of each kind of capital by it's cost of capital and add them all up. For the cost of debt, you must use the after tax cost of debt by multiplying the before tax cost of debt by (100%-tax rate).

Weighted cost of common stock equity = 51% x 19.3% = 0.51 x 0.193 = 0.09843
+weighted cost of preferred stock = 17% x 11.4% = 0.17 x 0.114 = 0.01938
+after-tax weighted cost of debt = 32% x 10.1% x (100% - 34%) = 0.32 x 0.101 x 0.66 = 0.02133
Weighted average cost of capital (WACC) = 0.09843+0.01938+0.02133 = 0.13914 = 13.914%

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