Smith and Jones Widget company has total capital, consisting of long-term debt and common equity of $80 million. Thirty-two million of total capital is in the form of long-term debt, which carries a cost of 12 percent. The company's equity carries a cost of 19.50 percent. If the company's tax rate is 38 percent, what is the WACC?
WACC = Weighted Average Cost of Capital and is calculated as
WACC = Proportion of debt X cost of debt + proportion of equity X cost of equity
Proportion is ...
The solution explains how to calculate the WACC.