Answer:
d. $750,000; 8.9%
Explanation:
The computation is shown below:
A. Current Total Market Value
Current market value of debt $150,000 The Current market value of equity $600,000 (10,000 shares × $60) Market Value $750,000
B. Weighted Average Cost of Capital (WACC)
WACC = {Equity ÷ (Equity + Debt) × Cost of Equity} + {Debt ÷ ( Equity + Debt ) × Cost of Debt × (1 - 25%)}
= {$600,000 ÷ ($600,000 + $150,000) × 10%} + {$150,000 ÷ ($600,000 + $150,000) × 6% × 0.75}
= ($600,000 ÷ $750,000) × 10% + ($150,000 ÷ $750,000) × 6% × 0.75 = 0.08 + 0.009
= 8.90%
Hence, the correct option is D. $7,50,000 ; 8.90%
