The Granite Paving Company has a debt to total value ratio of 0.5. The cost of debt is 8% and that of unlevered equity is 12%. Calculate the weighted average cost of capital if the tax rate is 30%.
A) 14.8%
B) 10.2%
C) 12.0%
D) None of the above

Question

Quizplus · Accepted Answer

The WACC is calculated as follows: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tc), where E/V = 0.5, D/V = 0.5, Re = 12%, Rd = 8%, and Tc = 30%. Plugging in the values, WACC = 0.5 * 12% + 0.5 * 8% * (1 - 0.3) = 6% + 2.8% = 8.8%.

The Granite Paving Company Has a Debt to Total Value