The following information relates to the Atlas Division of Global Enterprises:
Interest rate on debt capital: 8%
Cost of equity capital: 12%
Market value of debt capital: $50 million
Market value of equity capital: $80 million
Income tax rate: 30%
On the basis of this information,Atlas's weighted-average cost of capital is closest to:

Question

Quizplus · Accepted Answer

The WACC is calculated as: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)), where E = market value of equity, D = market value of debt, V = E + D, Re = cost of equity, Rd = cost of debt, Tc = tax rate. Plugging in the values: WACC = ($80M/$130M * 12%) + ($50M/$130M * 8% * (1-0.3)) = 9.5%.

The Following Information Relates to the Atlas Division of Global