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), where E is equity, V is total value (equity + debt), Re is the cost of equity, D is debt, Rd is the cost of debt, and Tc is the tax rate. Here, WACC = (0.55 * 18%) + (0.45 * 10% * (1-0.35)) = 12.83%.

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