5.Capital Co. has a capital structure, based on current market values, that consists of 21 percent debt, 9 percent preferred stock, and 70 percent common stock. If the returns required by investors are 10 percent, 12 percent, and 17 percent for the debt, preferred stock, and common stock, respectively, what is Capital’s after-tax WACC? Assume that the firm’s marginal tax rate is 40 percent. (Round intermediate calculations to 4 decimal places, e.g. 1.2514 and final answer to 2 decimal places, e.g. 15.25%.)

After tax WACC= %

To calculate the after-tax WACC (Weighted Average Cost of Capital), we will need to follow a few steps:

1. Calculate the cost of debt after tax:
The cost of debt before tax is given as 10%. However, we need to account for the tax shield provided by the interest expense. Since the firm's marginal tax rate is 40%, the after-tax cost of debt can be calculated as follows:
After-tax cost of debt = Cost of debt before tax * (1 - Tax rate)
= 10% * (1 - 0.40)
= 10% * 0.60
= 6%

2. Calculate the weighted average cost of debt (WACC):
The WACC is a weighted average of the costs of different sources of financing, based on their proportions in the capital structure.
WACC = (Weight of debt * Cost of debt) + (Weight of preferred stock * Cost of preferred stock) + (Weight of common stock * Cost of common stock)

Given:
Weight of debt = 21%
Weight of preferred stock = 9%
Weight of common stock = 70%
Cost of debt = 6%
Cost of preferred stock = 12%
Cost of common stock = 17%

WACC = (0.21 * 6%) + (0.09 * 12%) + (0.70 * 17%)
= 1.26% + 1.08% + 11.90%
= 14.24%

3. Round the final WACC to 2 decimal places:
After-tax WACC = 14.24%

Therefore, Capital Co.'s after-tax WACC is 14.24%.