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Y_Kistochka [10]
2 years ago
6

What is the weighted average cost of capital if a business has a cost of equity of 12%, a cost of debt of 10%, tax rate of 25%,

20 million market value of debt, and 60 million market value of equity?
Mathematics
1 answer:
kvv77 [185]2 years ago
8 0

If the cost of equity is 12% , cost of debt 10%, tax rate 25%, 20 million market value of debt , 60 million market value of equity then the weighted average cost of capital is 10.875%

Given cost of equity is 12% , cost of debt 10%, tax rate 25%, 20 million market value of debt , 60 million market value of equity.

We know that weighted average cost of capital= cost of equity* weight of equity+ cost of debt* weight of debt.

Cost of debt (consider after tax)=10%(1-25%)

=10%*0.75

=0.075

Weight of equity=60/80

=0.75

Weight of debt=20/80

=0.25

Weighted average cost of capital=12%*0.75+0.075*0.25

=0.09+0.01875

=0.10875

=10.875%

Hence the weighted average cost of capital is 10.875%

Learn more about weighted average at brainly.com/question/18554478

#SPJ4

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inysia [295]

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