Question

Company y has a cost of common equity of 14%. They use 66.67% common equity and 33.33% debt. They have a before-tax cost of debt of 10% and its marginal tax rate is 40%. Assume that the company's long-term debt sells at par value. The company has 500 shares of common stock outstanding that sell for $3.25 per share. Calculate their WACC

Answer 1

Weighted average cost of capital ( WACC ) = [ % of common equity * cost of common equity ] + [ % of debt * Cost of debt * ( 1 - tax% ) ] = [ 66.67% * 14% ] + [ 33.33% * 10% * ( 1 - 40% ) ] = 11.33%

Note : In the absence of any information regarding rounding off the answer is rounded off to 2 decimal places.