American Widget company has total capital, consisting of long-term debt and common equity, of $120 million. Fifty million of total capital is in the form of long-term debt, which carries a cost of 10 percent. The company's equity carries a cost of 16 percent. If the company's tax rate is 35 percent, what is the WACC?
WACC = Proportion of debt X cost of debt X (1-tax rate) + ...
The solution explains how to calculate the WACC (Weighted Average Cost of Capital)