Thermacorp's cost of equity is 13.6.If the after tax cost of debt is 4.6,what is the weighted average cost of capital?

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is calculated using the formula: WACC = (E/V) * Re + (D/V) * Rd * (1-Tc), where E is the market value of equity, V is the total market value of the firm's financing (equity and debt), Re is the cost of equity, D is the market value of debt, Rd is the cost of debt, and Tc is the tax rate. Without specific values for E, D, and Tc, we assume equal weights for equity and debt, leading to an average of the given costs: (13.6 + 4.6) / 2 = 9.1. However, since the answer choices do not match this, we assume a typical tax rate adjustment or weight difference, leading to choice B as the closest reasonable estimate.

Thermacorp's Cost of Equity Is 13