What is a firm's weighted-average cost of capital for a firm that is financed 45% by...
What is a firm's weighted-average cost of capital for a firm that is financed 45% by debt? The debt has a 10% required return and the equity has a 17% required return. The tax rate is 21%.
Homework Answers
WACC = Weight of debt * Pretax cost of debt * (1 - Tax Rate) + Weight of equity * Cost of Equity
Weight of Equity = 1 - Weight of debt = 1 - 45% = 55%
WACC = 45% * 10% * (1 - 21%) + 55% * 17%
WACC = 3.555% + 9.35%
WACC = 12.91%
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