The M&M Company is financed by $10 million in debt (market value)and $40 million in equity (market value).The cost of debt is 10% and the cost of equity is 20%.Calculate the weighted average cost of capital assuming no taxes.

Question

Quizplus · Accepted Answer

The WACC is calculated as (E/V * Re) + (D/V * Rd), where E is equity, D is debt, V is total value (E+D), Re is cost of equity, and Rd is cost of debt. Here, WACC = (40/50 * 20%) + (10/50 * 10%) = 16% + 2% = 18%.

The M&M Company Is Financed by $10 Million in Debt