A firm has debt of $5,000, equity of $16,000, a cost of debt of 8 percent,...
A firm has debt of $5,000, equity of $16,000, a cost of debt of 8 percent, a cost of equity of 12 percent, and a tax rate of 21 percent. What is the firm's weighted average cost of capital?
10.20 percent
9.94 percent
10.90 percent
10.65 percent
11.05 percent
Homework Answers
After-tax cost of debt=8*(1-tax rate)
=8*(1-0.21)=6.32%
Total=(5000+16000)=$21000
WACC=Respective cost*Respective weight
=(5000/21000*6.32)+(16000/21000*12)
=10.65%(Approx)
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