Caddie Manufacturing has a target debt-equity ratio of .65. Its cost of equity is 13 percent,...
Caddie Manufacturing has a target debt-equity ratio of .65. Its cost of equity is 13 percent, and its pretax cost of debt is 6 percent. If the tax rate is 25 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Homework Answers
The company's WACC is computed as shown below:
= Pretax cost of debt x ( 1 - tax rate ) x 0.65 / 1.65 + cost of equity x 1 / 1.65
= 0.06 x ( 1 - 0.25 ) x 0.65 / 1.65 + 0.13 x 1 / 1.65
= 9.65% Approximately
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