The market value of common stock of a firm is $400 million

Accounting May 18, 2021

The market value of common stock of a firm is $400 million. The market value of preferred stock is $60 million. The market value of debt is $140 million. The yield to maturity of debt is 5.8% and the dividend yield for the preferred stock is 7.2%. The required rate of return for common stock is 12%. The tax rate is zero. What is the weighted average cost of capital for the firm?

Approximately 9%

Approximately 10%

Approximately 11%

Expert Solution

Hence, the correct option is 2) Approximately 10%

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