A firm requires an investment of $30,000 and borrows $10,000 at 6%. If the return on equity is 15% and the tax rate is 30%, what is the firm's WACC?

Name: A firm requires an investment of $30,000 and borrows $10,000 at 6%. If the return on equity is 15% and the tax rate is 30%, what is the firm's WACC?
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Question

Quizplus · Accepted Answer

The WACC is calculated as (E/V * Re) + (D/V * Rd * (1-T)). Here, E = $20,000, D = $10,000, V = $30,000, Re = 15%, Rd = 6%, T = 30%. WACC = (20,000/30,000 * 15%) + (10,000/30,000 * 6% * (1-0.3)) = 11.4%.

A Firm Requires an Investment of $30,000 and Borrows $10,000