The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure

Finance Jan 08, 2021

The calculation of WACC involves calculating the weighted average of the required rates of return on debt, preferred stock, and common equity, where the weights equal the percentage of each type of financing in the firm's overall capital structure. is the symbol that represents the cost of raising capital through retained earnings in the weighted average cost of capital (WACC) equation. Wyle Co. has $2.7 million of debt, $3 million of preferred stock, and $1.8 million of common equity. What would be its weight on preferred stock? O 0.32 O 0.44 O 0.24 O 0.40

Expert Solution

1. RS is the cost of retained earning in calculation of the weighted average cost of capital.

2. Weight of the preferred stock= (value of the preferred stock / total capital)

= (3/7.5)=40%

Correct answer will be option (D).40.

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