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Calculating WACC

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Calculating WACC
Weston Industries has a debt-equity ratio of 1.5. Its WACC is 12 percent, and its cost debt is 9% percent. The corporate tax rate is 35 percent.

a) What is Westonâ??s cost of equity capital?
b) What is Westonâ??s unlevered cost of equity capital?
c) What would the cost of equity be if the debt â?" equity ratio were 2? What if it were 1.0? What if it were zero?

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Calculating WACC is achieved in this case.

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a) WACC = Wd*rd*(1-tax rate) + We*re
WACC=12%
Wd/We=1.5 we also know that wd+we=1, solving we get we=0.4 and wd=0.6
rd=9%
tax rate =35%
plugging the numbers we get
12%=0.6*9%*(1-35%)+0.4*re
Solving we ...

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