Homework Answers
- The weighted average cost of capital (WACC) can be calculated with the help of following formula
WACC = wd * rd + we*re = Weighted cost of debt + weighted cost of equity
Where,
WACC =?
rd is after-tax cost of debt = 8%
wd is the proportion of debt of the company = 35%
we is the proportion of equity of the company = 65%
re is the cost of equity = 15%
Therefore,
Weighted cost of debt = proportion of debt of the company * after-tax cost of debt
= 35% * 8% = 2.80%
And weighted cost of equity = proportion of equity of the company * the cost of equity
= 65% * 15% = 9.75%
Therefore,
WACC = Weighted cost of debt + weighted cost of equity
WACC = 2.80% + 9.75% =12.55%
Therefore weighted average cost of capital (WACC) is 12.55%
- The weighted average cost of capital (WACC) can be calculated with the help of following formula
WACC = wd * rd + we*re = Weighted cost of debt + weighted cost of equity
Where,
WACC =?
rd is after-tax cost of debt = 9%
wd is the proportion of debt of the company = 50%
we is the proportion of equity of the company = 50%
re is the cost of equity = 17%
Therefore,
Weighted cost of debt = proportion of debt of the company * after-tax cost of debt
= 50% * 9% = 4.50%
And weighted cost of equity = proportion of equity of the company * the cost of equity
= 50% * 17% = 8.50%
Therefore,
WACC = Weighted cost of debt + weighted cost of equity
WACC = 4.50% + 8.50% =13.00%
Therefore weighted average cost of capital (WACC) is 13.00%
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