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Caddie Manufacturing has a target debt-equity ratio of .35. Its cost of equity is 12 percent, and its pretax cost of debt is 6 percent. If the tax rate is 21 percent, what is the company’s WACC?

Respuesta :

Answer:

10.12%

Explanation:

The computation of the WACC is shown below:

= Cost of debt Ă— (1 - tax rate) Ă— weight of debt + cost of equity Ă— weight of equity

= 6% Ă— (1 - 0.21) Ă— 0.35 Ă· 1.35 + 12% Ă— 1 Ă· 1.35

= 1.23% + 8.89%

= 10.12%

We simply multiplied the capital structure with each of its weight so that the WACC could come and the same is to be considered

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