What is the WACC for Bacon Signs Inc,if the after-tax cost of long-term debt is 6.3% and the before tax cost of equity is 10.4%.

Question

Quizplus · Accepted Answer

We can calculate the WACC using the formula WACC = (E/V) * Re + (D/V) * Rd * (1-Tc), where E is the market value of equity, V is the total market value of the firm, D is the market value of debt, Rd is the cost of debt, and Tc is the corporate tax rate. Since the question does not provide a corporate tax rate, we assume it to be zero. Thus, the WACC would be WACC = (E/V) * Re + (D/V) * Rd = (E/(E+D)) * Re + (D/(E+D)) * Rd = (10.4/16.7) + (6.3/16.7) * (1-(0)) = 0.623 + 0.377 = 1.000 = 10.00%. Therefore, the best answer choice is B (8.91%).

What Is the WACC for Bacon Signs Inc,if the After-Tax