A firm is financed with 62 percent debt and 38 percent equity.The pretax costs of debt and equity capital are 6.6 percent and 11.3 percent,respectively.What is the tax rate if the WACC is 7 percent?

Name: A firm is financed with 62 percent debt and 38 percent equity.The pretax costs of debt and equity capital are 6.6 percent and 11.3 percent,respectively.What is the tax rate if the WACC is 7 percent?
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Question

Quizplus · Accepted Answer

0.07 = 0.38 × 0.113 + 0.62 × 0.066 × (1 – x). Solving for x = 34%

A Firm Is Financed with 62 Percent Debt and 38