Calculate the weighted average cost of capital WACC) based on the following information: the capital structure weights are 50% debt and 50% equity; the interest rate on debt is 10%; the required return to equity holders is 20%; and the tax rate is 30%.

Question

Quizplus · Accepted Answer

The WACC is calculated as: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)), where E is equity, V is total value, Re is cost of equity, D is debt, Rd is cost of debt, and Tc is tax rate. Substituting the given values: WACC = (0.5 * 20%) + (0.5 * 10% * (1-0.3)) = 10% + 3.5% = 13.5%.

Calculate the Weighted Average Cost of Capital WACC) Based on the Following