Question

Suppose that JB Cos. has a capital structure of 76 percent equity, 24 percent debt, and that its before-tax cost of debt is 13 percent while its cost of equity is 17 percent. Assume the appropriate weighted-average tax rate is 25 percent. What will be JB❝s WACC? (Round your answer to 2 decimal places.)

Answer 1

0.1526 is your right answer here buddy!.

Answer 2

0.1526 or 15.26%

Step-by-step explanation:

Capital percent of equity (We) = 76%

Capital percent of debt (Wd) = 24%

Before-tax cost of debt (Cd)= 13%

Cost of equity(Ce)= 17%

Weighted-average tax rate is (Tx) = 25%

The weighted average cost of capital is given by the following expression:

`WACC= (W_e*C_e) + (W_d*C_d*(1-Tx))`

Note that this expression accounts for the tax rate deduction.

JB's WACC is:

`WACC= (0.76*0.17) + (0.24*0.13*(1-0.25))\\\\WACC=0.1526 \ or\ 15.26\%`