Final answer:
To calculate the WACC for Sixx am manufacturing, use the formula: WACC = (E/V) * Ke + (D/V) * Kd * (1 - Tax Rate), where E is the market value of equity, V is the total market value of equity and debt, Ke is the cost of equity, D is the market value of debt, Kd is the cost of debt, and Tax Rate is the corporate tax rate.
Step-by-step explanation:
To calculate the Weighted Average Cost of Capital (WACC), we need to consider the cost of equity and the cost of debt. The formula for WACC is:
WACC = (E/V) * Ke + (D/V) * Kd * (1 - Tax Rate)
Where:
- E = Market value of equity
- V = Total market value of equity and debt
- Ke = Cost of equity
- D = Market value of debt
- Kd = Cost of debt
- Tax Rate = Corporate tax rate
In this case, the target debt-equity ratio is given as 0.55, so the equity portion is 0.45. Let's assume the market value of equity is $100 million and the market value of debt is $55 million. Plug in the values and solve:
WACC = (0.45 * 19%) + (0.55 * 8%) * (1 - 38%)
Calculating this equation will give you the WACC for Sixx am manufacturing.