Use the following information to answer the next question:
Operating assets = $3,000
Operating liabilities = $1,000
Book value of debt = Market value of debt = $1,500
Book value of equity = $500
Market value of equity = $900
Value of operating leases = $2,000
After-tax required return on unsecured debt = 6%
Required return on equity (CAPM )= 13%
After-tax required return on secured debt = 5%
-What are (1 )the WACC before adjustment for leases and (2 )the WACC after adjustment for leases?

Question

Quizplus · Accepted Answer

WACC (unadjusted) = ($900/$2,400) * 13% + ($1,500/$2,400) * 6% = 8.63%; WACC (adjusted) = ($900/$4,400) * 13% + ($1,500/$4,400) * 6% + ($2,000/$4,400) * 5% = 6.98%

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