# Optimal Capital Structure Calculation for West Coast Bhd

## Component Costs Calculation

**Debt:** The cost of debt (kd) is calculated as follows:

kd = [(10/100) × 1000 + (5/100) × 1000]/(1000 - (5/100) × 1000) = 5.68%

**Preferred Shares:** The cost of preferred shares (kp) is calculated using the formula:

kp = (12/100) × 100 + (1.50/100) × 100 - 10/100 × 110 = 11.10%

**Common Shares:** The cost of equity (ke) is calculated as:

ke = (2.5 × (1 + 6%))/22.50 × (1 - 0.10) + 6% = 13.47%

## Weighted Average Cost of Capital (WACC) Calculation

The WACC is calculated using the formula:

WACC = wd kd (1 - T) + wp kp + we ke

Where, wd, wp, and we are the weight of debt, preferred stock, and common stock respectively, kd is the before-tax cost of debt, kp is the cost of preferred stock, ke is the cost of equity, and T is the tax rate.

To find the weight of each component, the following formulas are used:

Weight of debt = Book value of debt/Total capital

Weight of preferred shares = Market value of preferred shares/Total capital

Weight of common shares = Market value of common shares/Total capital

Using the given data, the weights are determined as follows:

Weight of Debt = 88.6%

Weight of Preferred Shares = 0.98%

Weight of Common Shares = 10.42%

With these weights, the WACC for West Coast Bhd is computed as:

WACC = 7.79%

Therefore, the firm's WACC is 7.79%.