In: Finance

A firm has a total debt of 10 million, and equity of 15 million. The company pays 8% interest on the debt and return on equity is 14%. If the tax rate of the company is 35%, calculate the cost of capital for the company?

Ans 10.48%

Investment | Tax Cost | After Tax Cost (Tax Cost * (1 - 35%)) | Average Cost | |

Debt | 1,00,00,000 | 8% | 5.20% | 5,20,000 |

Equity | 1,50,00,000 | 14.00% | 14% | 21,00,000 |

2,50,00,000 | Total Cost | 26,20,000 | ||

WACC = | 2620000 / 25000000 * 100 | |||

10.48% |

a
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