Need help with this rate after-tax for debt. Debt is 45%, before-tax debt is 8.7%, and Tax rate is 35%. Please someone help me having a really hard time figuring this out.

Question

anonymous · Answer

Can anyone answer this I know the equation is kd(1-T)*wd just cannot figure the kd or the wd with the numbers I have given. Please someone help.

hero · Answer

Can you explain in a little more detail about this project you're working on?

anonymous · Answer

I am looking for the WACC for a company. The main problem I am having is with the after-tax part of this problem. Common stock is 40% with a cost of preferred stock of 9.6%, Common stock is 40% with a cost of common equity 17.9%. Does this help you.

anonymous · Answer

The way the problem is set-up is figure the debt amount of 0.45 * after-tax = something. Then you figure Preferred stock of 0.15*0.096=0.0144, Common stock 0.40*0.179=0.0716 then you add the three together. I just am not sure how to figure the debt after-tax part of the problem. Please explain how to do this if you can.

hero · Answer

Not really. It's the terminology that I'm having trouble following. If I were you, I'd test out these percentages you're working with by using actual dollar amounts. Besides, in order to really help you, I'd have to have a full idea of how it all works together. I would need some kind of visual model of the money flow.

anonymous · Answer

Thank you for trying.

hero · Answer

By the way, if you want someone to help you, you should make sure you give the helper the best description of the situation as possible. Sometimes words only isn't enough. Pictures, flow-charts, graphs---I'm almost positive your company uses such things in business meetings when they're explaining their money flow.