Answer:
Step-by-step explanation:
Weighted Average Cost of Capital (WACC) = (Weight of Equity x Cost of Equity) + (Weight of Preference Shares x Cost of Preference Shares) + (Weight of Debt x Cost of Debt x (1-Tax Rate))
Weight of Equity = (10000 x 100) / (100000 + 400000 + 600000) = 0.16
Cost of Equity = (Dividend per share / Market Price per share) + Growth Rate
= (10 / 110) + 0.06 = 0.077
Weight of Preference Shares = (400000 / (100000 + 400000 + 600000)) = 0.64
Cost of Preference Shares = 12%
Weight of Debt = (600000 / (100000 + 400000 + 600000)) = 0.20
Cost of Debt = 10%
Weighted Average Cost of Capital (WACC) = (0.16 x 0.077) + (0.64 x 0.12) + (0.20 x 0.10 x (1 - 0.35))
= 0.0123 + 0.0768 + 0.065 = 0.1561 or 15.61%