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zimovet [89]
3 years ago
6

The weighted-average cost of capital for a firm with a 65/35 debt/equity split, 8% pre-tax cost of debt, 15% cost of equity, and

a 35% tax rate is
Business
1 answer:
Vinil7 [7]3 years ago
8 0

Answer:

weighted-average cost of capital is 11.57 %

Explanation:

Weighted Average Cost of Capital (WACC) is the return that is required by providers of long term permanent sources of capital.

WACC = Weight of Equity × Cost of Equity + Weight of Debt × After tax cost of debt.

where,

After tax cost of debt = interest × ( 1 - tax rate)

                                     = 8% × (1 - 0.35)

                                     = 5.20 %

Therefore,

WACC = 0.65 × 15% + 0.35 × 5.20 %

           = 11.57 %

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