Suppose that TNT, Inc. has a capital structure of 43 percent equity, 23 percent preferred stock, and 34 percent debt. If the after-tax component costs of equity, preferred stock and debt are 15.4 percent, 10 percent and 7 percent, respectively, what is TNT’s WACC if the firm faces an average tax rate of 21 percent?
To calculate WACC:
0.43 × 15.4% + 0.23 × 10% + 0.34 × 7% = 11.302%.
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