Question

Oxy Corporation uses debt preferred stock, and common stock to raise capital The firm's capital structure targets the following proportions debt, 46% preferred stock, 14%, and common stock 40% if the cost of debt is 5 4%, profaned stack costs 8.5%, and common stock costs 10 1% what is Oxy's weighted average cost of capital (WACCY?

Oxy's weighted average cost of capital (WACC) is % Round to two decimal places

Answer 1

Oxy Corporation's WACC is calculated as 30.07% after accounting for the respective costs and weightings of debt, preferred stock, and common stock in the firm's capital structure.

Step-by-step explanation:

The Weighted Average Cost of Capital (WACC) for Oxy Corporation can be calculated by multiplying the cost of each component of capital (debt, preferred stock, and common stock) by its respective weighting in the firm's capital structure, and then summing these products. Here is how the calculation is done based on Oxy Corporation's capital structure:

• Cost of debt (after-tax): 5.4% weight: 46%
• Cost of preferred stock: 8.5% weight: 14%
• Cost of common stock: 10.1% weight: 40%

Using these figures, the WACC is:

(0.54 * 0.46) + (0.085 * 0.14) + (0.101 * 0.4) = 0.2484 + 0.0119 + 0.0404 = 0.3007

Therefore, Oxy's WACC is 30.07%, which, when rounded to two decimal places, is 30.07%.