Homework Answers
Answer: The correct answer is 7.90%
Weight of Debt = 0.30
Weight of Equity = 0.70
Before tax Cost of Debt = 5.00%
After-tax Cost of Debt = Before-tax Cost of Debt * (1 - Tax
Rate)
After-tax Cost of Debt = 5.00% * (1-0.40)
After-tax Cost of Debt = 3.00%
Cost of Equity = 10.00%
WACC = Weight of Debt * After-tax Cost of Debt + Weight of
Equity * Cost of Equity
WACC = 0.30 * 3.00% + 0.70 * 10.00%
WACC = 7.90%
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