Acme Corp. is financed 40% with debt. The pre-tax cost of debt is 5.8%. Equity investors...
Acme Corp. is financed 40% with debt. The pre-tax cost of debt is 5.8%. Equity investors require a return on their investment of 12.3%. The company's marginal tax rate is 21%. What is the weighted average cost of capital (WACC)? 9.7% 7.4% 9.2% Not enough information.
Homework Answers
WACC is the Weighted Average Cost of Capital and is given by We*Re + Wd*Re*(1-t)
Where Wi is the weight of Equity and Debt for i=e,d
Ri is the return of Equity and Debt for i=e,d
Given the information
WACC = 60%*12.3% + 40%*5.8%(1-21%) = 7.38% + 1.8328% = 9.2128%
Thus, option C is the correct answer i.e. 9.2%
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