Baxter Inc. has a target capital structure of $30 million debt, $15 million preferred stock, and $55 million common equity. The company's after-tax cost of debt is 7%, its cost of preferred stock is 11%, its cost of retained earnings is 15%, and its cost of new common stock is 16%. The company stock has a beta of 1.5 and the company's marginal tax rate is 35%. What is the company's weighted average cost of capital if retained earnings are used to fund the common equity portion

12%

Explanation:

Weighted Average Cost of Capital = Weight of Equity * Cost of Equity + Weight of Preferred Stock * Cost of Preferred Stock + Weight of Debt * Cost of Debt

Particluars                Weights (given)          Cost             Weights*Cost

Common stock           55% or 0.55               16%                  = 8.8 %

Debt                            30 % or 0.30              7% (after tax)   = 2.1 %

Preferred Stock           15 % or 0.15               7.15 % =             1.0725 %

                                         WACC                                               12 %

answer; measurable outcome;