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# WACC

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What is the after tax cost of debt on a \$345000 loan given a 9% interest rate and 28% tax bracket?

8.9%
\$22,356
6.48%
\$36,000

Brown Street Grocers has a cost of equity of 10.68 percent, a pre-tax cost of debt of 5.4 percent, and a tax rate of 33 percent. What is the firm's weighted average cost of capital if the debt-equity ratio is 0.6?

7.24 percent
8.03 percent
9.65 percent
11.60 percent
9.25 percent

#### Solution Summary

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\$2.19

## Figuring the WACC, the unlevered beta & WACC with new capital structure

As the Vice President of a Finance company with the following available data:

Total assets \$ 10,000,000.00
Debt \$ 2,500,000.00
common equity \$ 7,500,000.00
before tax cost of debt 12.00%
risk-free rate 5.00%
Market Return 16.00%
beta at current capital structure 1.20
Tax Rate 40%

What is my firms's current Weighted Average Cost of Capital (WACC)?

What is my firm's unlevered beta?

If I am considering changing my firm's capital structure to 40% debt and 60% common equity, to make this change, I will issue additional debt and use the proceeds to repurchase common stock. If I do this, the before tax cost of debt will rise to 14%. What would be my firm's WACC if you adopt this new capital structure?

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