Answer:
The WACC is 10.93%
Step-by-step explanation:
The WACC or weighted average cost of capital is the cost to firm of its capital structure. The capital structure of the firm consists of debt, preferred stock and common stock. The WACC is calculated by taking the sum of the weighted average cost of each component of the capital structure.
WACC = wD * rD * (1-tax rate) + wP * rP + wE * rE
Where,
- w represents the weight of each component as a proportion of total assets
- r represents the cost of each component
- We take the after tax cost of debt. So, rD is multiplied by (1-tax rate)
WACC = 0.45 * 0.09 * (1-0.35) + 0.1 * 0.065 + 0.45 * 0.17
WACC = 0.109325 or 10.9325% rounded off to 10.93%