Corporate Finance Q70

70The following information is available for a firm:
Debt-to-equity ratio: 50%
Tax rate: 30% Cost of debt: 12%
Cost of equity: 19%
The firm’s weighted average cost of capital (WACC) is closest to:

Option : B
Explanation : Wd = (D/E) / (1 + D/E) = 0.5 / (1 + 0.5) = 33.3%
We = 1 - Wd = 66.7%
WACC = Wd Rd (1 - t) + We Re
WACC = 33.3%* 12%* (1 - 30%) + 66.7% * 19% = 15.47%.

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