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Cost of Equity & Capital

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A firm has a total market value of $10 millions and debt has a market value of $4 millions. What is the after-tax weighted average cost of capital if the before - tax cost of debt is 10%, the cost of equity is 15% and the tax rate is 35%?

A. 13%
B. 11.6%
C. 8.75%
D. None of the given answers

Given the following data:
Cost of debt = rD = 6%
Cost of equity = rE = 12.1%
Marginal tax rate = 35%
And the firm has 50% debt and 50% equity...

Calculate the after-tax weighted average coat of capital (WACC):

A. 8%
B. 7.1%
C. 9.05%
D. None of the given values

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Solution Summary

Calculate the after-tax weighted average coat of capital (WACC) in this case.

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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