Suppose that TapDance, Inc.’s capital structure features 75 percent equity, 25 percent debt, and that its...

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Suppose that TapDance, Inc.’s capital structure features 75 percent equity, 25 percent debt, and that its before-tax cost of debt is 8 percent, while its cost of equity is 13 percent. The appropriate weighted average tax rate is 21 percent.

What will be TapDance’s WACC? (Round your answer to 2 decimal places.)

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Answer 1

Answer #1

WACC = E/V *Ke + D/V*Kd*(1-T)

Kd = Cost of debt

Ke = Cost of Equity

E = Market Value of firm's equity

D = Market Value of firm's debt

V =E +D = Total market value of the firm

T = Tax Rate

WACC = 0.75 * 13% + 0.25* 8% *(1-21%)

=0.1133

=11.33%

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Answer 2

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