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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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3 years ago
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Note: This platform did allow the explanation to be saved here as it was claiming it contains swearwords. Please, see the attached pdf file for the full answer and explanation.

Download pdf
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