Question

Natah, a builder of acoustic accessories, has no debt and an equity cost of capital of 13%. Suppose NatNah decides to increase its leverage to maintain a market debt-to-value ratio of 0.5. Suppose its debt cost of capital is 8% and its corporate tax rate is 35%-lf Natahs pre-tax WACC remains constant, what will be its (effective after-tax) WACC with the increase in leverage?

0 0
Add a comment Improve this question Transcribed image text
Answer #1
Effective after tax rate = Pretax WACC - rd*t*((D/(E+D)
= 13 - 0.5*8*.35 = 11.775%
where, rd = cost of debt, t=tax rate, D=value of debt and E=value of equity
Add a comment
Know the answer?
Add Answer to:
Natah, a builder of acoustic accessories, has no debt and an equity cost of capital of...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions
ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT