With a tax rate of 35%, calculate the WACC for a firm that pays 10% on its debt, requires an 18% rate of return on its equity, and finances 45% of assets with debt.

Question

Quizplus · Accepted Answer

The WACC is calculated as: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)). Here, E/V = 0.55, D/V = 0.45, Re = 18%, Rd = 10%, and Tc = 35%. Plugging in these values: WACC = (0.55 * 0.18) + (0.45 * 0.10 * (1-0.35)) = 0.099 + 0.02925 = 12.83%.

With a Tax Rate of 35%, Calculate the WACC for a Firm