Your firm is 30% equity financed. You have a cost of debt of 6.3, a cost...

Question

Question

Your firm is 30% equity financed. You have a cost of debt of 6.3, a cost of equity of 15.4, and a tax rate of 16.

What is your firm's weighted average cost of capital?

{enter your number as a percentage to two decimal places. Ex: 12.34%)

Answer 1

Answer #1

Debt ratio = 100% - Equity ratio = 100% - 30%	70%

After tax cost of debt = Cost of debt * ( 1 - tax% ) = 6.3% * ( 1 - 16% )	5.29%

Weighted average cost of capital = ( Cost of equity * Equity ratio ) + ( After tax cost of debt * Debt ratio ) = ( 15.4% * 30% ) + ( 5.29% * 70% )	8.32%

Answer 2

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