Take It All Away has a cost of equity of 11.17 percent, a pretax cost of debt of 5.32 percent, and a tax rate of 40 percent. The

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Take It All Away has a cost of equity of 11.17 percent, a pretax cost of debt of 5.32 percent, and a tax rate of 40 percent. The

company's capital structure consists of 65 percent debt on a book value basis, but debt is 31 percent of the company's value on a market value basis. What is the company's WACC

Business

1 answer:

frozen [14] · Answer 1 · 2022-07-03T01:50:26+03:00

Answer:

WACC=(Ke*E+D*Kd)/(E+D)

Explanation:

Ke (Cost of Equtiy)=11.17%

Kd (Cost of Debt)=5.32%

E (Market value of Equity)=?

D(Market Value of Debt)=65

If D market value is 31% of Total Market value of company so by grossing up D We get E+D=65/.31=210. So E=210-65=145

WACC=(Ke*E+D*Kd)/(E+D)

WACC=(11.17%*145+65*5.32%)/(145+65)

WACC=(16.2+3.5)/(210)

WACC=9.36%