Targaryen Corporation has a target capital structure of 50 percent common stock, 10percent preferred stock, and 40 percent debt. Its cost of equity is 8 percent, the cost ofpreferred stock is 4 percent, and the pretax cost of debt is 5 percent. The relevant taxrate is 38 percent.a. What is the company's WACC? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)b.What is the aftertax cost of debt? (Do not round intermediate calculations and enteryour answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Solution:Weighted Average Cost of Capital (WACC) is the minimum rate of return required by the…

Answered: Targaryen Corporation has a target…

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity Is 10 percent, the cost of preferred stock Is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 22 percent. a. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round Intermedlate calculatlons and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. WACC b. Cost of debt %
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