Corporate Finance Q71

71The following information is available for a firm:
Cost of debt: 11%
Cost of equity: 15%
Debt-to-equity ratio (D/E): 50%
Tax rate: 35%
The weighted average cost of capital (WACC) is closest to:

Option : C
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% * 11% * (1 - 35%) + 66.7% * 15% = 12.39%

Forgot your password?

I agree with the Terms.