Wentworth's Five and Dime Store has a cost of equity of 11.2 percent. The company has an aftertax cost of debt of 4.8 pe...
Wentworth's Five and Dime Store has a cost of equity of 11.2 percent. The company has an aftertax cost of debt of 4.8 percent, and the tax rate is 39 percent. If the company's debt–equity ratio is .72, what is the weighted average cost of capital?
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6.39%
-
7.30%
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8.52%
-
6.69%
-
7.74%
Homework Answers
Debt-equity ratio=debt/equity
Hence debt=0.72*equity
Let equity be $x
Debt=$0.72x
Total=$1.72x
WACC=Respective costs*Respective weight
=(x/1.72x*11.2)+(0.72x/1.72x*4.8)
=8.52%(Approx).
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