A firm's capital structure consists of 35% debt with an after-tax cost of 5.2%. Common equity makes up 55% of the structure and the rest is made up of preferred equity. The preferred stock has a coupon of 7% and the required rate of return on the common stock is 13.7%. The firm's WACC is ________.
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A. B. C. D. E. F. G.C
To get the WACC in this case, you need to have information on the cost of preferred stock. This is not necessarily equal to the coupon rate on the preferred equity.
Rather, it is the discount rate that equates the present value of the perpetual payments on the preferred equity to its current price. Without the price information, you cannot get the cost of preferred equity and hence, WACC cannot be calculated.