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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
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32 votes
32 votes
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

User Goldfish
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1 Answer

17 votes
17 votes

Answer:

the weighted average cost of capital is 6.96%

Step-by-step 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

User Blues
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