Question

Eaglet Corporation has the following target and costs associated with its capital structure. Based on these parameters what is Eaglet Corporations weighted average cost of capital?
Target common equity weight: 80 percent
Target debt weight: 20 percent
Cost of equity: 15 percent
Cost of debt: 5 percent
Tax rate: 35 percent
A) WACC = 12.65 percent
B) WACC = 8.45 percent
C) WACC = 13.00 percent

Answer 1

Answer: A) WACC = 12.65 percent

Explanation:

WACC = (Cost of equity * weight of equity) + (weight of debt * cost of debt * (1 - tax rate)

= (0.15 * 0.8) + (0.2 * 0.05 * (1 - 0.35))

= 0.12 + 0.0065

= 12.65%