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A.6.48% B.7.92% C.9.36% D.10.80%
Where:
Re = cost of equity
Rd = cost of debt
E = market value of the firm's equity
D = market value of the firm's debt
V = E + D
E/V = percentage of financing that is equity
D/V = percentage of financing that is debt
Tc = corporate tax rate
So,
WACC=1/3*12% +2/3*9%*(1-40%)
=4%+6%*0.60
=7.6%
c.9.36%
WACC = [ke x E/(E + D)] + [kd x D/(E + D) x (1 - T)
Where ke is cost of equity
kd is cost of debt
E is equity amount
D is debt amount
T is tax rate, which affect debt instruments based on the interest to be paid on them by the company
WACC = [.12 x3/(3+2)] + [.09 x2/(3+2) x (1 - .40)]
=0.072 +0.0216
=0.0936 = 9.36%
WACC=Ke*Ve/Ve+Vd+Kd*(1-t)/Ve+Vd
Where Ve is market value of Equity
Ve is Mv of debt
Ke and Ke is cost of equity and debt respectively and t is tax rate payed by company
so after putting values in above equation we get the desire answer
answer9.36--------------------------------------------------------------------------------------------
= (3/5*12%)+(2/5*(9%-9%*0.4))
=7.2% +2.16% =9.36% (C)
WACC =9.36%
Option C is the right answer
Option-C is the right answer.
7.6% as calculated below-
WACC=9%X(1-0.4)X2/3+12%X1/3
weighted average cost of capital = debit2/3*%90+eguity1/3*%12*(1-.40%tax)=(5.99%+*3.99%)*60%=6%
wacc=6%
Answer is C
WACC for Debt is2.16%
WACC for equity is7.2%
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