The XYZ, Inc finances its operations by using 75% equity and the rest using debt. The...
The XYZ, Inc finances its operations by using 75% equity and the rest using debt. The cost of equity is
13% and the cost of debt is 5%. The corporate tax rate is 30%. What is the WACC of the CI Corp?
Answer should be: 10.625%
Homework Answers
WACC is calculated by using the formula below:
WACC= wd*kd(1-t)+we*ke
where:
Wd=percentage of debt in the capital structure
We=percentage of equity in the capital structure
Kd=cost of debt
Ke=cost of equity
t= tax rate
WACC= 0.25*5%*(1 – 0.30) + 0.75*13%
= 0.8750% + 9.75
= 10.6250%
In case of any query, kindly comment on the solution.
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