Question

Calculate the weighted average cost of capital (before tax and are tax) from the following
information. Assume that the tax rate is 55%.
Type of capita!
Before tar cost of
Proportion in the new
capital structure
capial
Equity capital
25%
24.74%
10%
Preference Capital
27.29%
32 minutes ago
janu
50%
7.99%
Debt Capital
Retained Earnings
15%
18.33%
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Answer 1

Answer:

Determining the cost of debt. Cost of debt is used in WACC calculations for valuation analysis. ... Take the weighted average current yield to maturity of all outstanding debt then multiply it one minus the tax rate and you have the after-tax cost of debt to be used in the WACC formula.