Assume that XYZ Corporation is a leveraged company with the following information: K_l = cost of equity capital for XYZ = 13 percent
I = before-tax borrowing cost = 8 percent
T = marginal corporate income tax rate = 30 percent
If XYZ's debt-to-total-market-value ratio is 40 percent,then its weighted average cost of capital,K,is:

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is calculated using the formula: WACC = (E/V) * K_l + (D/V) * I * (1-T). Here, E/V = 0.6, D/V = 0.4, K_l = 13%, I = 8%, and T = 30%. Plugging in these values, WACC = (0.6 * 13%) + (0.4 * 8% * (1-0.3)) = 10%.

Assume That XYZ Corporation Is a Leveraged Company with the Following