The firm is capital structure is 30% of debts and 70% of equity. The cost of debt before–Tax is 3%, and the cost of equity is 10%. The income tax is 30%. Calculate the WACC. Select one: a. WACC=4.5% b. WACC=7.63% c. WACC=5.63% d. WACC=9.3%

The firm is capital structure is 30% of debts and 70% of equity. The cost of debt before–Tax is 3%, and the cost of equity is 10%. The income tax is 30%. Calculate the WACC. Select one: a. WACC=4.5% b. WACC=7.63% c. WACC=5.63% d. WACC=9.3%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

The firm is capital structure is 30% of debts and 70% of equity. The cost of debt before–Tax is 3%, and the cost of equity is 10%. The income tax is 30%. Calculate the WACC.

Select one:

a. WACC=4.5%

b. WACC=7.63%

c. WACC=5.63%

d. WACC=9.3%

Definition Definition Amount of return a company generally pays to its equity investors. The cost of equity represents the compensation required by the market in lieu of owning the asset firm and simultaneously bearing the risk of ownership.

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