Take It All Away has a cost of equity of 10.72 percent, a pretax cost of debt of 5.39 percent, and a tax rate of 35 percent. The company's capital structure consists of 74 percent debt on a book value basis, but debt is 34 percent of the company's value on a market value basis. What is the company's WACC?
Target weight of debt= 34%
Target weight of equity= 66%
Before tax cost of debt= 5.39%
Cost of equity= 10.72%
Tax rate= 35%
Wd=percentage of debt in the capital structure
We=percentage of equity in the capital structure
Kd=cost of debt
Ke=cost of equity
t= tax rate
WACC= 0.34*5.39%*(1- 0.35) + 0.66*10.72%
= 1.1912 + 7.0752
= 8.2664% 8.27%
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