Question

for a firm weight of equity and debt is 0.6 and 0.4 respectively and cost of equity is 15%, cost of debt is 9%, tax rate is 30%. calculate WACC for the firm?

Answer 1

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Answer 2

Weight Average Cost of Capital (WACC) =

         {E/V × ke} + [ D/V × Kd × (1-Tc)

      where :

E = Market value of the firm's equity             0.6

D = Market value of the firm's debt                0.4

V = total market value of equity & debt (E+D)        0.6+0.4

Ke =  Cost of equity       15%

Kd =  Cost of debt          9%

Tc = Corporate tax          30%

WACC = {(0.6/1) × 0.15 }  +  {(0.4/1 ×0.09×(1-0.3)}

WACC = 0.09+0.0252

    =0.1152 × 100%

WACC the firm  = 11.52%