Question

Country Kitchen's cost of equity is 19.8 percent and its pretax cost of debt is 8.9 percent. What is the firm's weighted average cost of capital if its debt-equity ratio is 0.66 and the tax rate is 46 percent

Answer 1

33.17%

Step-by-step explanation:

WACC = (D/E) rd (1 - tax rate) + (E/D) re

(D/E) = Debt to equity ratio

rd = pretax cost of debt

(E/D) = equity to debt ratio

re = cost of equity

0.66 x 8.9 x 0.54 + 19.8 x 1.52 = 3.17 + 30 = 33.17%