In case the firm is all-equity financed, WACC would be equal to:Options :Cost of debtCost of equityNeither A nor BBoth A and B

Break Down the Problem

1. Identify key concepts: WACC (Weighted Average Cost of Capital), cost of debt, and cost of equity.
2. Determine the financing structure: all-equity financed means there is no debt.

Relevant Concepts

3. In an all-equity financed firm, the WACC is calculated primarily based on the cost of equity.
4. WACC formula: $WACC = \frac{E}{V} \cdot r_e + \frac{D}{V} \cdot r_d \cdot (1 - T)$ where:
   • $E$ = market value of equity
   • $D$ = market value of debt
   • $V$ = total market value of the firm (E + D)
   • $r_e$ = cost of equity
   • $r_d$ = cost of debt
   • $T$ = corporate tax rate

Analysis and Detail

5. In the case of an all-equity firm:
   • $D = 0$, which implies that the debt component in the WACC formula is eliminated.
   • Thus, the formula simplifies to: $WACC = r_e$

Verify and Summarize

6. Since there is no debt, the WACC directly equals the cost of equity. Therefore, the correct answer relates solely to the cost of equity.

Final Answer

The WACC of an all-equity financed firm would be equal to the Cost of Equity. Thus, the correct option is Cost of equity.