Homework Answers
Cost of debt after-tax=10*(1-tax rate)
=10*(1-0.3)=7%
Debt-equity ratio=debt/equity
Hence debt=0.5*equity
Let equity be $x
Debt=$0.5x
Total assets=debt+equity
=1.5x
WACC=Respective costs*Respective weight
=(x/1.5x*16)+(0.5x/1.5x*7)
=13%
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