Tulloch Manufacturing has a target debt-equity ratio of 63. Its cost of equity is 13.7 percent,...

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Answer 1

Answer #1

Weight of equity = 1 / ( 1 + debt-equity)

Weight of equity = 1 / ( 1 + 0.63)

Weight of equity = 0.6135

Weight of debt = 1 - 0.6135 = 0.3865

WACC = Weight of debt*after tax cost of debt + weight of equity*cost of equity

WACC = 0.3865*0.087*(1 - 0.3) + 0.6135*0.137

WACC = 0.02354 + 0.08405

WACC = 0.1076 or 10.76%

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Answer 2

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