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Weight Average Cost of Capital ( WACC )

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If a firm has a balance sheet with 50% debt and 50% equity, cost of debt of 6%, tax rate of 35%, and a cost of equity of 12%, what is the firms weighted average cost of capital?

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Solution Summary

WACC is calculated.

$2.19
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Weighted Average Cost of Capital (WACC) calculations

A company's balance sheets show a total of $30 million long-term debt with a coupon rate of 9 percent. The yield to maturity on this debt is 11.11 percent, and the debt has a total current market value of $25 million. The balance sheets also show that that the company has 10 million shares of stock; the total of common stock and retained earnings is $30 million. The current stock price is $7.5 per share. The current return required by stockholders, rS, is 12 percent. The company has a target capital structure of 40 percent debt and 60 percent equity. The tax rate is 40%. What weighted average cost of capital should you use to evaluate potential projects?

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