Question

The cost of capital for a firm with a 60/40 debt/equity split, 2.45% cost of debt, 15% cost of equity, and a 35% tax rate would be

Answer 1

Answer:

the weighted average cost of capital is 6.96%

Explanation:

The computation is shown below;

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

= 15% × 40% + 2.45% × (1 - 0.35) × 60%

= 6% + 0.96%

= 6.96%

Hence, the weighted average cost of capital is 6.96%

The same would be considered