The weighted average cost of capital is determined by _____ the weighted average cost of equity....

The weighted average cost of capital is determined by _____ the weighted average cost of equity.

a. multiplying the weighted average aftertax cost of debt by

b. adding the weighted average pretax cost of debt to

c. adding the weighted average aftertax cost of debt to

d. dividing the weighted average pretax cost of debt by

e. dividing the weighted average aftertax cost of debt by

Solutions

Expert Solution

Ans c. adding the weighted average aftertax cost of debt to

The weighted average cost of capital is determined by adding the weighted average aftertax cost of debt to the weighted average cost of equity.

Eg.

	Investment	Tax Cost	After Tax Cost (Tax Cost*(1-Tax Rate)	Average Cost
Debt	6,00,00,000	8%	4.80%	28,80,000
Common Stock	14,60,00,000	12.00%	12.00%	1,75,20,000
	20,60,00,000	Total Cost	2,04,00,000


WACC =	20400000 / 206000000 * 100
	9.90%

jeff jeffy answered 1 year ago

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