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Determine the weighted average cost of capital (WACC) for the XYZ Company that will finance its optimal capital budget with $120 million of long-term debt (kd = 12.5%) and 180 million in retained earnings (ke = 16%). XYZ present capital is considered optimal. The marginal tax rate is 40%.

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This solution calculates the weighted average cost of capital for a company.

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The weighted-average cost of capital (WACC) is the weighted average of Kd and Ke. Because ...

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