Fast Inc. has no debt and a WACC of 9%. The company now changes its capital...
Fast Inc. has no debt and a WACC of 9%. The company now changes its capital structure to a debt-to-equity ratio of 0.5. The interest rate on debt is 4.5%, the new cost of equity is 10.51% and the tax rate is 33%.
What is the company's new WACC?
Homework Answers
Weight of equity= 1 / (1 + D/E)
Weight of equity = 1 / (1 + 0.5)
Weight of equity = 0.6667
Weight of debt = 1- 0.6667 = 0.3333
New WACC = Weights of debt*after tax cost of debt + weight of equity*cost of equity
New WACC = 0.3333*0.045*(1 - 0.33) + 0.6667*0.1051
New WACC = 0.010049 + 0.07007
New WACC = 0.0801 or 8.01%
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