You were hired as a consultant to Locke Company, and you were provided with the following data: Target

You were hired as a consultant to Locke Company, and you were provided with the following data: Target capital structure: 40% debt, 10% preferred, and 50% common equity. The interest rate on new debt is 7.5%, the yield on the preferred is 7.0%, the cost of retained earnings is 11.50%, and the tax rate is 40%. The firm will not be issuing any new stock. What is the firm's WACC?

a. 8.25%

b. 8.38%

c. 8.49%

d. 8.61% SOLUTION