A company has determined that its optimal capital structure consists of 40 percent debt and 60 percent equity. Given the following information, calculate the firm's weighted average cost of capital.
rd = 6%
Tax rate = 40%
P0 = $25
Growth = 0%
D0 = $2.00
WACC is the weighted average cost of capital and is calculated as below
WACC = proportion of debt X after tax cost of debt + proportion of equity X cost of equity
Here it is ...
The solution shows how to calculate the WACC.