To calculate the Weighted Average Cost of Capital (WACC), we need to take into account the proportion of debt and equity in the capital structure, the cost of debt and equity, and the tax rate. Here's how to do it:

1. Calculate the after-tax cost of debt: The before-tax cost of debt is 4%. Since interest is tax-deductible, we need to adjust this for the tax rate. The after-tax cost of debt is therefore 4% * (1 - 30%) = 2.8%.

2. Calculate the weighted cost of debt: This is the proportion of debt in the capital structure times the after-tax cost of debt. So, 40% * 2.8% = 1.12%.

3. Calculate the weighted cost of equity: This is the proportion of equity in the capital structure times the cost of equity. So, 60% * 9% = 5.4%.

4. Add the weighted cost of debt and equity to get the WACC: 1.12% + 5.4% = 6.52%.

So, the company's WACC is closest to 6.52%. The correct answer is B. 6.52%.

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To calculate the Weighted Average Cost of Capital (WACC), we need to take into account the proportion of debt and equity in the capital structure, the cost of debt and equity, and the tax rate. Here's how to do it:

1. Calculate the after-tax cost of debt: The before-tax cost of debt is 4%. Since interest is tax-deductible, we need to adjust this for the tax rate. The after-tax cost of debt is therefore 4% * (1 - 30%) = 2.8%.

2. Calculate the weighted cost of debt: This is the proportion of debt in the capital structure times the after-tax cost of debt. So, 40% * 2.8% = 1.12%.

3. Calculate the weighted cost of equity: This is the proportion of equity in the capital structure times the cost of equity. So, 60% * 9% = 5.4%.

4. Add the weighted cost of debt and equity to get the WACC: 1.12% + 5.4% = 6.52%.

So, the company's WACC is closest to 6.52%. The correct answer is B. 6.52%.

Knowee AI · Accepted Answer

To calculate the Weighted Average Cost of Capital (WACC), we need to take into account the proportion of debt and equity in the capital structure, the cost of debt and equity, and the tax rate. Here's how to do it:

1. Calculate the after-tax cost of debt: The before-tax cost of debt is 4%. Since interest is tax-deductible, we need to adjust this for the tax rate. The after-tax cost of debt is therefore 4% * (1 - 30%) = 2.8%.

2. Calculate the weighted cost of debt: This is the proportion of debt in the capital structure times the after-tax cost of debt. So, 40% * 2.8% = 1.12%.

3. Calculate the weighted cost of equity: This is the proportion of equity in the capital structure times the cost of equity. So, 60% * 9% = 5.4%.

4. Add the weighted cost of debt and equity to get the WACC: 1.12% + 5.4% = 6.52%.

So, the company's WACC is closest to 6.52%. The correct answer is B. 6.52%.

An analyst gathers the following information about a company's capital structure:Debt (tax-deductible) 40%Equity 60%Before tax cost of debt 4%Cost of equity 9%If interest is tax-deductible and the marginal tax rate is 30%, the company's WACC is closest to:A.5.51%.B.6.52%.C.7.00%.

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