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    How do you calculate WACC given an optimal capital structure?

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    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

    a. 6.0%
    b. 6.2%
    c. 7.0%
    d. 7.2%
    e. 8.0%

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    Solution Preview

    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 ...

    Solution Summary

    The solution shows how to calculate the WACC.