Chapter 13, Problem 5QAP

Summary Introduction

Adequate information:

Common stock $\left({\text{W}}_{\text{S}}\right)$ = 70%

Debt $\left({\text{W}}_{\text{D}}\right)$ = 30%

Cost of equity $\left(\text{Ke}\right)$ = 10.90%

Cost of debt $\left(\text{Kd}\right)$ = 5.7%

Tax rate $\left(\text{t}\right)$ = 23%

To compute: WACC for the company M.

Introduction: The Weighted average cost of capital (WACC) refers to the cost of capital from various sources such as common stocks, preferred stocks, bonds, etc.