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astra-53 [7]
3 years ago
6

Home Bepot Inc. has a cost of equity of 11.3 percent. The company has an aftertax cost of debt of 4.9 percent, and the tax rate

is 40 percent. If the company's debt–equity ratio is .73, what is the weighted average cost of capital?
Business
1 answer:
ivolga24 [154]3 years ago
7 0

Answer: 8.60%

Explanation:

Weighted Average cost of capital = (Cost of equity * Weight of equity) + (After tax cost of debt * Weight of debt)

Weight of debt = Debt-equity ratio / (1 + Debt-equity ratio)

= 73% / (1 + 73%)

= 42.1965%

Weight of Equity = 1 / (1 + Debt - equity ratio)

= 1 / 1.73

= 57.8035%

WACC = (11.3% * 57.8035%) + (4.9% * 42.1965%)

= 8.60%

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