Cost of Preferred Stock (1 POINT) (e) WACC (2 POINTS) 10. In no more than 150 words, explain (i) why the use of theafter-tax cost of debt and not the actual cost of debt and (ii) why firms should use the WACC compared to the cost of a single component source of financing? (4 POINTS)
Retained earnings
Balance
24000
+
51000
+
40000
+
125000
+
62000
=
30000
+
33000
+
40000
+
150000
+
49000
(i)
20000
-20000
(ii)
-12000
12000
(iii)
-10000
-10000
(iv)
20000
20000
(v)
-5000
-5000
30000
+
33000
+
40000
+
150000
+
49000
(i)
20000
-20000
(ii)
-12000
12000
(iii)
-10000
-10000
(iv)
20000
20000
(v)
-5000
-5000
(vi)
42000
42000
(vii)
-18000
-18000
(viii)
-10050
-10050
(ix)
-10000
-10000
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- Fall '18
- Johnson
- Balance Sheet, Generally Accepted Accounting Principles
