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saul85 [17]
2 years ago
8

target debt-equity ratio of .40. Its cost of equity is 11.8 percent and its cost of debt is 6.5 percent. If the tax rate is 21 p

ercent, what is the company’s WACC?
Business
1 answer:
olga nikolaevna [1]2 years ago
4 0

Answer:

9.90%

Explanation:

Debt-equity=debt/equity=0.40( debt=0.40 while equity is  1 since 0.40/1=0.40)

weight of debt=0.40/(0.40+1)=28.57%

weight of equity=1/(0.40+1)=71.43%

cost of equity=11.80%

cost of debt=6.50%

tax rate=21%

WACC=(weight of equity*cost of equity)+(weight of debt*cost of debt)*(1-tax rate)

WACC=(71.43% *11.80%)+(28.57%*6.50%)*(1-21%)

WACC=9.90%

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