The company's WACC will be 10.87% which is option A.
<h3><u>What is WACC and how is it calculated?</u></h3>
WACC stands for Weighted average cost of capital.
WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight by market value, and then adding the products together to determine the total. The cost of equity can be found using the capital asset pricing model (CAPM).
A company's debt-to-capital ratio or D/C ratio is the ratio of its total debt to its total capital, its debt and equity combined. The ratio measures a company's capital structure,
Formula For Calculation of WACC :-
WACC Formula = (E/V * Ke) + (D/V) * Kd * (1 – Tax rate)
E = Market Value of Equity.
V = Total market value of equity & debt.
Ke = Cost of Equity.
D = Market Value of Debt.
Kd = Cost of Debt.
Tax Rate = Corporate Tax Rate.
To know more about Weighted average cost of capital, click the given links.
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Correct Question - A company has a debt-to-capitalization ratio of 31.8%. Its pre-tax cost of debt is 7.4%. It has an unlevered beta of 1.05, a levered beta of 1.37 and a marginal tax rate of 35%. The risk free rate is 5.2% and the market risk premium is 6.2%. What is the company's WACC?
A) 10.87%
B) 13.70%
C) 11.69%
D) 9.55%
