The cost of equity for a firm is 12% and its cost of debt is 6%. Ignoring taxes, what is the firm'sWACC if its debt-to-equity ratio is 1.0?
A) 12%
B) 9%
C) 18%
D) 15%

Question

Quizplus · Accepted Answer

The WACC is calculated as the weighted average of the cost of equity and the cost of debt. With a debt-to-equity ratio of 1.0, the weights for both debt and equity are equal (50% each). Therefore, WACC = 0.5 * 12% + 0.5 * 6% = 9%.

The Cost of Equity for a Firm Is 12% and Its