What is the WACC for a firm with equal amounts of debt and equity financing,a 16% before-tax company cost of capital,a 35% tax rate,and a 10% coupon rate on its debt that is selling at par value?

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Quizplus · Accepted Answer

The WACC is calculated using the formula: WACC = (E/V * Re) + (D/V * Rd * (1-Tc)), where E is equity, V is total value, Re is the cost of equity, D is debt, Rd is the cost of debt, and Tc is the tax rate. With equal debt and equity, E/V = D/V = 0.5. Re = 16%, Rd = 10%, and Tc = 35%. WACC = (0.5 * 16%) + (0.5 * 10% * (1-0.35)) = 8% + 3.25% = 11.25%.

What Is the WACC for a Firm with Equal Amounts