Question

Check my work All Canadian, Ltd. is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division The company has two sources of long-term capital: debt and equity. The interest rate on All-Canadian's $400 million debt is 9 percent, and the company's tax rate is 30 percent. The cost of All-Canadian's equity capital is 12 percent. Moreover, the market value of the company's equity is $550 million. (The book value of All-Canadian's equity is $440 million, but that amount does not reflect the current value of the company's assets or the value of intangible assets.) Part 1 of 2 The following data (in millions) pertain to All-Canadian's three divisions. 3.84 points Before-Tax Operating Income $18 Current Liabilities Total Assets $ 62 312 Division Pacific Plains Atlantic Book Print 48 References Required: 1. Compute All-Canadian's weighted average cost of capital (WACC). (Do not round Intermediate calculations. Round your final answer to 2 decimal places (i.e., 1234 should be entered as 12.34).)

Answer 1

Answer is given below

Weighted Average Cost of Capital 9.60% Million Market Weightage Value WACC Cost of Capital 6.30% 12.00% $400 0.42 Debt Equity $550 0.58 2.65% 6.95% 9.60% $950 Weightage Debt=$400/$950 Weightage Equity=$550/$950 For Debt Cost of capital is after tax 9%(1-30%) = 6.3%