(Weighted average cost of capital) The target capital structure for QM Industries is 38% common stock 7% preferred stock, and 55% debit. If the cost of common equity for the firm is 18.2%, the cost of preferred stock is 10.6% the cost of debt is 8.2%, and the firm's tax rate is 35%, what is QM's weighted average cost of capital?

To calculate the weighted average cost of capital (WACC) for QM Industries, we need to calculate the weighted average of the individual costs of each component of the capital structure.

1. Calculate the weighted cost of common equity:
The weight of common equity is 38%, and the cost of common equity is 18.2%. Multiply the weight by the cost:
Weight of common equity * Cost of common equity = 0.38 * 0.182 = 0.06916 or 6.916%.

2. Calculate the weighted cost of preferred stock:
The weight of preferred stock is 7%, and the cost of preferred stock is 10.6%. Multiply the weight by the cost:
Weight of preferred stock * Cost of preferred stock = 0.07 * 0.106 = 0.00742 or 0.742%.

3. Calculate the weighted cost of debt:
The weight of debt is 55%, and the cost of debt is 8.2%. Since the interest on debt is tax-deductible, we need to adjust the cost of debt by the tax rate. Multiply the weight by the adjusted cost:
Weight of debt * (Cost of debt * (1 - Tax rate)) = 0.55 * (0.082 * (1 - 0.35)) = 0.02667 or 2.667%.

4. Sum up the weighted costs of each component:
Add the weighted cost of common equity, preferred stock, and debt together to get the WACC:
WACC = Weighted cost of common equity + Weighted cost of preferred stock + Weighted cost of debt
= 6.916% + 0.742% + 2.667%
= 10.325%.

Therefore, QM Industries' weighted average cost of capital (WACC) is 10.325%.