In the WACC formula, Ke stands for _____________.a.Cost of debt after taxb.Cost of equityc.Weight of debt financingd.Cost of debt financing

Break Down the Problem

1. Identify what "Ke" represents in the context of the WACC (Weighted Average Cost of Capital) formula.

Relevant Concepts

2. Understand the components of the WACC formula, which is expressed as: $WACC = \frac{E}{V} K_e + \frac{D}{V} K_d (1 - T)$ where:
   • $E$ = market value of equity
   • $D$ = market value of debt
   • $V$ = total market value of the firm's financing (equity + debt)
   • $K_e$ = cost of equity
   • $K_d$ = cost of debt
   • $T$ = tax rate

Analysis and Detail

3. In the WACC formula, $K_e$ specifically refers to the "cost of equity," which is the return that equity investors expect on their investment in the company.

Verify and Summarize

4. The other options provided (a, c, and d) do not correctly describe $K_e$. Therefore, the correct answer is confirmed.

Final Answer

b. Cost of equity