A company's data are provided in the following table:Cost of debtCost of equityDebt-to-equity ratio (D/E)Tax rate10%16%50%30%What is the weighted average cost of capital (WACC)?

The average interest rate charged by a company to finance its assets is known as the weighted…

Answered: A company's data are provided in the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A company's data are provided in the following table:
Cost of debt
Cost of equity
Debt-to-equity ratio (D/E)
Tax rate
10%
16%
50%
30%
What is the weighted average cost of capital (WACC)?

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WACC=(VE×Re)+(V/D×Rd×(1−Tc))
where:E=Market value of the firm’s equity
D=Market value of the firm’s debt
V=E+DRe=Cost of equity
Rd=Cost of debt
Tc=Corporate tax rate

WHY IS THE RD MISSING?

THE Answer should be 10%?

WACC = 1/3*16% + (2/3 * 10% * 0.7)
= 10%?

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