A firm requires an investment of $60,000 and borrows $20,000 at 8%. If the return on equity is 14% and the tax rate is 30%, what is the firm's WACC?
A) 11.2%
B) 9.0%
C) 13.4%
D) 22.4%

Question

Quizplus · Accepted Answer

A) Use the WACC equation presented in this chapter. r_wacc = r_E 11ea84dc_f50f_db9a_9a63_5f898af054b2_TB1316_11_TB1316_11 + r_D (1 - T_C) 11ea84dc_f50f_db9b_9a63_7b59c279ac90_TB1316_11_TB1316_11 r_wacc =14% × ($40,000 / $60,000) + 8% × (1 - 0.3) × ($20,000 / $60,000) = 11.2%

A Firm Requires an Investment of $60,000 and Borrows $20,000