120k views
3 votes
Take It All Away has a cost of equity of 11.17 percent, a pretax cost of debt of 5.32 percent, and a tax rate of 40 percent. The company's capital structure consists of 65 percent debt on a book value basis, but debt is 31 percent of the company's value on a market value basis. What is the company's WACC

1 Answer

3 votes

Answer:

WACC=(Ke*E+D*Kd)/(E+D)

Step-by-step explanation:

Ke (Cost of Equtiy)=11.17%

Kd (Cost of Debt)=5.32%

E (Market value of Equity)=?

D(Market Value of Debt)=65

If D market value is 31% of Total Market value of company so by grossing up D We get E+D=65/.31=210. So E=210-65=145

WACC=(Ke*E+D*Kd)/(E+D)

WACC=(11.17%*145+65*5.32%)/(145+65)

WACC=(16.2+3.5)/(210)

WACC=9.36%

User Sanluck
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories