Question

Inc.'s capital structure features 40 percent equity, 60 percent debt, and that its before-tax cost of debt is 9 percent, while its cost of equity is 15 percent.

What will be TapDance’s WACC? (Round your answer to 2 decimal places.)
WACC %.

Answer 1

Answer:

WACC = ke(E/V) + Kd(D/V)

WACC = 15(0.40) + 9(0.60)

WACC = 6 + 5.4

WACC = 11.4%

Explanation:

WACC is a function of cost of equity multiplied by the proportion of equity in the capital structure plus cost of debt multiplied by the proportion of debt in the capital structure. The proportion of equity in the capital is expressed as E/V (0.40) while the proportion of debt in the capital structure is expressed as D/V (0.60).