Question

Company's cost of common equity is 12%, before-tax cost of debt is 8% and its margin tax rate is 30%. Given the market value capital below, calculate its WACC:

Long-term debt = $11,000,000
Common equity = 39,000,000
Total Capital = $50,000,000

Answer 1

Cost of Equity = 12%

Befire-Tax Cost of Debt = 8%

Tax rate = 30%

Calculating WACC of rge Company:-

WACC= (Weight of Debt)(Befire-Tax Cost of Debt)(1-Tax Rate) + (Weight of Equity)(Cost of Equity)

WACC= (11,000,000/50,000,000)(8%)(1-0.30) + (39,000,000/50,000,000)(12%)

WACC = 1.232% + 9.36%

WACC = 10.592%

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