Suppose a firm is unleveraged and has an unleveraged required return, r, of 15%. The firm borrows 30% of the value of the firm at rd = 8%. Because of the financial leverage, re becomes 18%. The firm pays corporate taxes at a rate of 35% but otherwise operates in perfect capital market. What is the firm's WACC?
a) Assuming the firm is operating in a perfect capital market (including no taxes).
b) Assuming there are only corporate taxes at a rate of 35% in an otherwise perfect capital market© BrainMass Inc. brainmass.com March 4, 2021, 9:49 pm ad1c9bdddf
The expert calculates taxes, leverage and WACC in a perfect capital market.