Capital Structure

Free CFA Level I lesson in Corporate Issuers. 14 min read, ~2,149 words.

WACC = (E/V)·rₑ + (D/V)·r_d·(1−t) + (P/V)·r_p, using market values and the after-tax cost of debt. Cost of debt uses the current YTM on new debt, not the coupon on legacy bonds. Preferred dividends take no (1−t) adjustment because they are paid from after-tax income. MM I no taxes: structure...