Solve for the weighted average cost of capital: $$\begin{aligned}
12.40 \% & = K _ { l } \
2 / 3 & = \lambda \
8.0 \% & = i \
40.0 \% & = \tau
\end{aligned}$$

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) formula is:

WACC = λ(Kd)(1 - τ) + (1 - λ)Ke

where:

Kd = cost of debt
τ = corporate tax rate
Ke = cost of equity

Substituting the given values, we get:

WACC = (2/3)(8%)(1 - 40%) + (1 - 2/3)(12.40%) = 7.33%

Therefore, the best choice is D) 7.33%.

Solve for the Weighted Average Cost of Capital 12.40%=Kl2/3=λ8.0%=i40.0%=τ\begin{aligned}12.40 \% & = K _ { l } \\2 / 3 & = \lambda \\8.0 \% & = i \\40.0 \% & = \tau\end{aligned}12.40%2/38.0%40.0%​=Kl​=λ=i=τ​

Solve for the Weighted Average Cost of Capital $\begin{aligned}12.40 \% & = K _ { l } \\2 / 3 & = \lambda \\8.0 \% & = i \\40.0 \% & = \tau\end{aligned}$