Given the following information, what is JEM Inc.'s weighted average cost of capital? Market value of equity = $50 million; market value of debt = $30 million; cost of equity = 16%; cost of debt = 8%; equity beta = 1.25; tax rate = 34%.

Question

Quizplus · Accepted Answer

The correct answer is A because the weighted average cost of capital (WACC) is calculated as follows:WACC = (E/V) * Re + (D/V) * Rd * (1 - T)where:E = market value of equityV = total value of the firm (E + D)Re = cost of equityD = market value of debtRd = cost of debtT = tax ratePlugging in the given values, we get:WACC = (50/80) * 0.16 + (30/80) * 0.08 * (1 - 0.34)= 0.1198 or 11.98%

Given the Following Information, What Is JEM Inc