A firm requires an investment of $30,000 and borrows $20,000 at 7%. If the return on equity is 15% and the tax rate is 30%, what is the firm's WACC?

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Quizplus · Accepted Answer

The WACC is calculated using the formula: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)), where E is equity, V is total value, Re is return on equity, D is debt, Rd is cost of debt, and Tc is tax rate. Here, E = $10,000, D = $20,000, V = $30,000, Re = 15%, Rd = 7%, and Tc = 30%. Plugging in these values gives WACC = (10,000/30,000 * 15%) + (20,000/30,000 * 7% * (1-0.30)) = 8.27%.

A Firm Requires an Investment of $30,000 and Borrows $20,000