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Debt-equity ratio=Debt/equity
Hence debt=0.65equity
Let equity be $x
Hence debt=$0.65x
Total=debt+equity
=(x+0.65x)=$1.65x
After tax cost of debt=9(1-0.4)=5.4%
WACC=Respective costs*Respective investment weights
=(5.4*0.65x/1.65x)+(x/1.65x*13)
which is equal to
=10.01%(Approx).
Solution
Debt-equity ratio=Debt/equity
Hence debt=0.65equity
Let equity be $x
Hence debt=$0.65x
Total=debt+equity
=(x+0.65x)=$1.65x
After tax cost of debt=9(1-0.4)=5.4%
WACC=Respective costs*Respective investment weights
=(5.4*0.65x/1.65x)+(x/1.65x*13)
which is equal to
=10.01%(Approx).

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Debt-equity ratio=DebtequityHence debt=0.65equityLet equity be .pdf

  • 1. Debt-equity ratio=Debt/equity Hence debt=0.65equity Let equity be $x Hence debt=$0.65x Total=debt+equity =(x+0.65x)=$1.65x After tax cost of debt=9(1-0.4)=5.4% WACC=Respective costs*Respective investment weights =(5.4*0.65x/1.65x)+(x/1.65x*13) which is equal to =10.01%(Approx). Solution Debt-equity ratio=Debt/equity Hence debt=0.65equity Let equity be $x Hence debt=$0.65x Total=debt+equity =(x+0.65x)=$1.65x After tax cost of debt=9(1-0.4)=5.4% WACC=Respective costs*Respective investment weights =(5.4*0.65x/1.65x)+(x/1.65x*13) which is equal to =10.01%(Approx).