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    Calculate the Weighted-Average Cost of Capital (WACC)

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    GII capital structure is 75% equity based and 25% debt based. GII is in the 25% marginal tax bracket in France and has a cost of equity of 18% and an average debt cost of 7%. Calculate GII weighted average cost of capital (WACC).

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    Solution Preview

    GII's weighted-average cost of capital will be computed as follows:

    1. Find the weighted after-tax cost of debt:

    Gross cost of debt .07
    Tax rate .25
    Net after-tax cost .75 ...

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    This solution illustrates how to compute the WACC.

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