Question

Suppose that TapDance, Inc.’s, capital structure features 65 percent equity, 35 percent debt, and that its before-tax cost of debt is 6 percent, while its cost of equity is 11 percent. Assume the appropriate weighted average tax rate is 34 percent. What will be TapDance’s WACC? (Round your answer to 2 decimal places.)

Answer 1

Answer:

WACC 8.53600%

Explanation:

$WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})$

The Weighted average cost of capita lconsiders the weight of the equity times the cost of it.

And the wight of the dbet times the cost of financing after the tax shield.

Ke 0.11000

Equity weight 0.65

Kd 0.06

Debt Weight 0.35

t 0.34

$WACC = 0.11(0.65) + 0.06(1-0.34)(0.35)$

WACC 8.53600%