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Weighted average cost of capital

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Cost of equity is 16%; the before tax cost of debt is 13% ; the marginal tax rate is 40%.
Stock sells at book value.

I need to calculate the after tax weighted average cost of capital using the following balance sheet.

Assets Liabilities and Equity

Cash = 120 Long term debt = 1,152
Accounts receivable = 240 Equity = 1,728
Inventory = 360
Plant and equipment = 2,160
Total assets = 2,880 Total liabilities and equity = 2,880

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Solution Preview

Weighted average cost of capital is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. All capital sources, which include common stock, preferred stock, bonds ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the after tax weighted average cost of capital using the following balance sheet.

$2.19