Sixx AM Manufacturing has a target debt—equity ratio of 0.66. Its cost of equity is 18 percent, and its cost of debt is 10 percent. If the tax rate is 33 percent, what is the company's WACC?
After-tax cost of debt=10*(1-tax rate)
=10*(1-0.33)=6.7%
Debt-equity ratio=debt/equity
Hence debt=0.66 equity
Let equity be $x
Debt=$0.66x
Total=$1.66x
WACC=Respective cost*Respective weight
=(x/1.66x*18)+(0.66x/1.66x*6.7)
which is equal to
=13.51%(Approx).
Sixx AM Manufacturing has a target debt—equity ratio of 0.66. Its cost of equity is 18...
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