A firm has an effective (after-tax) cost of debt of 5%, and its weight of debt is 40%

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A firm has an effective (after-tax) cost of debt of 5%, and its weight of debt is 40%

1 A firm has an effective (after-tax) cost of debt of 5%, and its weight of debt is 40%. Its equity cost of capital is 12%, and its weight of equity is 60%. Calculate the firm's weighted average cost of capital (WACC). [Enter your answer as a percentage rounded to two decimal places.]

2 In which one of the following situations would the payback method be the preferred method of analysis?

1) A project that can easily be expanded

2) Two mutually exclusive projects

3) A proposed expansion of a firm's current operations

4) Different-sized projects

5) Investment funds available only for a limited period of time

business finance

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Answer 1

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Answer #1

1. WACC =Weight of Equity*Cost of Equity+Weight of Debt*After tax cost of debt =60%*12%+40%*5% =9.20%

2. Option 5 . Investment funds available only for a limited period of time.

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Answer 2

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A firm has an effective (after-tax) cost of debt of 5%, and its weight of debt is 40%

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