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A4. Eschevarria Research has the capital structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?

A4. (Estimating the WACC with three sources of capital) Eschevarria Research has the capital structure given here. If Eschevarria’s tax rate is 30%, what is its WACC?
Book value Market value Before tax cost of capital
Bonds $1,000 $1,000 8%
Preferred stock 400 300 9%
Common stock 600 1,700 14% 

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