Question

Consolidated Appliances has a Beta of 0.85, the risk-free interest rate is 2.5%, and the equity risk premium is 5.5%. The yield to maturity on Consolidated Appliances debt is 4.65%. The company is financed 58% with equity, and 42% with debt, and has a tax rate of 21%. What is the WACC for consolidated Appliances?

Please use excel, this is how I need to answer it and it's confusing to me

Answer 1

Cost of debt
Cost of debt	4.65%
Tax rate	21%
After-tax cost of debt	=4.65%*(1-21%)
After-tax cost of debt	3.67%
Cost of equity stock
Cost of equity=	Risk free rate + beta * Market risk premium
Cost of equity=	2.5% + 0.85 * 5.5%
Cost of equity=	7.175%
Calculation of WACC
	Cost			Weight	Weighted cost
	A			C=Capital component/Total capital	D=A*C
Debt	3.67%			42.00%	1.54%
Equity	7.18%			58.00%	4.16%
	Total capital			Total WACC	5.70%