Question

Kelso's has a debt-equity ratio of 0.6 and a tax rate of 35 percent. The cost of equity is 14.5 percent and the after tax cost of debt is 4.8 percent. What is the weighted average cost of capital

Answer 1

10.86 percent

Step-by-step explanation:

Calculation to determine the weighted average cost of capital

Weighted average cost of capital = (1/1.6) (0.145) + (0.6/1.6) (0.048)

Weighted average cost of capital = (0.625) (0.145) + (0.375) (0.048)

Weighted average cost of capital = 10.86 percent

Therefore Weighted average cost of capital is 10.86 percent