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Weighted Average Cost of Capital Calculation

Your firm has expected earnings before interest and taxes of $1,700. Your unlevered cost of capital is 11% and your tax rate is 33%. You have debt with a book and a face value of $2,500. This debt has an 8% coupon and pays interest annually. What is your weighted average cost of capital?

Solution Preview

First calculate the cost of levered equity and then calculate the WACC.
rs= r0 + B/S*(1-T)*(r0-rd)
Where
rs=cost of levered equity
r0=Cost of unlevered equity = 11%
B/S=Debt equity ...

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$2.19