Answered

Discover the best answers at Westonci.ca, where experts share their insights and knowledge with you. Experience the ease of finding reliable answers to your questions from a vast community of knowledgeable experts. Experience the ease of finding precise answers to your questions from a knowledgeable community of experts.

The cost of capital for a firm with a 60/40 debt/equity split, 4.86% cost of debt, 15% cost of equity, and a 35% tax rate would be:______.

Sagot :

Parrain

Answer: 7.9%

Explanation:

The weighted cost of capital for a firm shows the cost of capital from all sources that fund the business including stock and long term liabilities.

Formula is:

= (Weight of equity * cost of equity) + (Weight of debt * (cost of debt * (1 - tax rate) ))

= (0.4 * 0.15) + ( 0.6 * ( 0.0486 * ( 1 - 35%)))

= 0.06 + 0.018954

= 7.895%

= 7.9%

We hope you found this helpful. Feel free to come back anytime for more accurate answers and updated information. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.