Answer to Question #23052 in Real Analysis for Matt

Question

Taxes and WACC. Rainbow in the dark manufacturing has a target debt equity ratio of .65 its cost of 13 %, and its cost of debt is 8 %. if the tax rate is 35 %. What is the companys WACC?

Answer 1

The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets.
WACC = Ks х Ws + Kd х Wd х ( 1 - T )
WACC = 0.65*0.13 + 0.65*0.08*(1 - 0.35) = 0.1183 = 11.83%