Caddie Manufacturing has a target debt-equity ratio of .60. Its cost of equity is 11 percent,...

Caddie Manufacturing has a target debt-equity ratio of .60. Its cost of equity is 11 percent, and its pretax cost of debt is 6 percent. If the tax rate is 22 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expert Solution

Ans 8.63

DEBT / EQUITY =	0.60
DEBT =	0.60 EQUITY
DEBT =	0.60* (1 - DEBT)
DEBT =	0.60 - 0.60 DEBT
DEBT =	0.60 / 1.60
DEBT =	37.50%

EQUITY =	1 - DEBT
	1 - 37.50%
	62.50%

	Investment	Tax Cost	After Tax Cost (Tax Cost * (1- tax))	Average Cost
Debt	37.50	6%	4.68%	1.76
Common Stock	62.50	11.00%	11.00%	6.88
	100.00	Total Cost		8.63

jeff jeffy answered 7 months ago

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