Question

Rideshare service Zap, Inc. has issued $40 million worth of stock with a cost of 8.4% per year. They also have a bank loan for $60 million with an interest rate of 5.2% per year. Their effective tax rate is 23%. What is their after-tax WACC?

Answer 1

Weighted average cost of capital (WACC) = [(S/S+B)*Rs + (B/S+B)*Rb(1-tc)]
	S = equity, B = debt, Rs = Cost of equity, Rb = cost of debt,
	tc = corporations tax rate
S	40000000
B	60000000
S/(S+B)	0.4
B/(S+B)	0.6
Rs	0.084
Rb	0.052
tc	0.23
WACC	.4*.084 + .6*.052*(1-.23)
WACC	.0336 + .024024
WACC	0.057624
Rideshare service Zap, Inc.'s after-tax WACC is 5.76%.