Increase of 1.24%
Before the D/E increase
Weight of equity = Weight of debt = 1/2 = 0.5
WACC=after tax cost of
debt*W(D)+cost of equity*W(E)
WACC=0.5*0.07*(1-0.21)+0.12*0.5
WACC =8.765%
After the D/E increase
Weight of debt = 1.5/(1+1.5) = 0.6
Weight of equity = 1-0.6 = 0.4
WACC=after tax cost of
debt*W(D)+cost of equity*W(E)
WACC=0.6*0.11*(1-0.21)+0.12*0.4
WACC =10.014%
Increase in WACC = (10.014-8.765)% = 1.24%
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