The capital structure for the CR Corporation is the following: bonds $5,500, and common stock $11,000.If CR has an after-tax cost of debt of 6%, and a 16% cost of common stock, what is its WACC?

Question

Quizplus · Accepted Answer

The Weighted Average Cost of Capital (WACC) is calculated by weighting the cost of each capital component (debt and equity) by its proportion in the total capital and then summing these results. For CR Corporation, the total capital is $5,500 (debt) + $11,000 (equity) = $16,500. The proportion of debt is $5,500 / $16,500 = 1/3, and the proportion of equity is $11,000 / $16,500 = 2/3. The WACC = (1/3 * 6%) + (2/3 * 16%) = 2% + 10.67% = 12.67%.

The Capital Structure for the CR Corporation Is the Following