Answer:
= 9%
Explanation
The weighted Average cost of Capital (WACC) is the average cost of capital for the different sources of long-term capital available to a firm weighted according to the proportion each source of finance bears to the total capital in the pool.
The after tax WACC will be computed as follows
Step 1
Compute the after-tax cost of debt
After-tax cost of debt =
=10%× (1-0.3)
=7%
Note : observe that this lower than the before tax cost, this is due to the tax savings on interest cost
Cost of equity = 13%
Debt equity ratio = 2:1
Step 2
Calculate the WACC
WACC = ((13% × 1) + (7%×2))/3
= 0.09 × 100
= 9%