Question

Orange Airlines has the following target and costs associated with its capital structure. Based on these parameters what is Orange Airlines' WACC?

Target common equity weight:	60 percent
Target debt weight:	70 percent
Cost of equity:	14 percent
Cost of debt:	6 percent
Tax rate:	32 percent

Answer 1

WACC = ((weight of debt * cost of debt*(1-tax rate)) + (weight of equity * cost of equity))/Total weight      
((70%*6%*(1-32%))+(60%*14%))/(70%+60%)      
0.08658461538   or  
8.66%      
      
So wacc is   8.66%