Ask Question
21 August, 02:43

A firm is 40% financed by debt with a yield-to-maturity of 8.5%. The equity has a beta of 1.3, the market risk premium is 8.4% and the risk-free rate is 3.8%. What is the firm's WACC if the tax rate is 34%

+2
Answers (1)
  1. 21 August, 03:19
    0
    11.076%

    Explanation:

    The computation of the WACC is shown below:

    = Weightage of debt * cost of debt * (1 - tax rate) + (Weightage of common stock) * (cost of common stock)

    = (0.40 * 8.5%) * (1 - 34%) + (0.60 * 14.72%)

    = 2.244% + 8.832%

    = 11.076%

    The cost of common stock is

    = Risk free rate of return + Beta * market risk premium

    = 3.8% + 1.3 * 8.4%

    = 3.8% + 10.92%

    = 14.72%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A firm is 40% financed by debt with a yield-to-maturity of 8.5%. The equity has a beta of 1.3, the market risk premium is 8.4% and the ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers