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A firm has a total debt of 10 million, and equity of 15 million. The company...

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?

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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%

jeff jeffy answered 3 weeks ago
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