AA4. (Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?

AA4. (Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?

                                   Book value          Market value        Before tax cost of capital

Bonds                         $1,000                 $1,000                 8%

Preferred stock           400                      300                      9%

Common stock           600                      1,700                   14%

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