Targaryen corporation has a target capital structure of 65 percent common stock, 5 percent preferred stock, and 30 percent debt. its cost of equity is 13 percent, the cost of preferred stock is 5 percent, and the pretax cost of debt is 6 percent. the relevant tax rate is 25 percent. a. what is the company’s wacc? (do not round intermediate 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 intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.)

R_Wacc =  13% (65%) + 5% (5%) + 6% (30%) * (1-0,25) =  10,05%

The aftertax cost of debt is:    

R_Debt :  (1 - 0,25) x 6% = 4,50%

Explanation:

The WACC it's defined by the formula :

WACC: E/V*Re + D/V*Rd *(1-0,25)

Re:  13,00%  Cost of Common Equity    

Re:  5,00%  Cost of Preferred STOCK  

Re:  6%     Cost of Debt  

E/V:  65%   Percentage of financing that is Common Equity  

PS/V:  5%     Percentage of financing that is Preferred Stock  

DB/V:  30%    Percentage of financing that is Debt  

Tax:  25%    Corporate tax rate  

Now we have all of the components to calculate the WACC.

The WACC is:      

R_Wacc =  13% (65%) + 5% (5%) + 6% (30%)*(1-0,25) =  10,05%  

The aftertax cost of debt is:    

R_Debt :  (1 - 0,25) x 6% = 4,50%

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