If interest is tax-deductible and the marginal tax rate is 30%, the company's WACC is closest to:A.5.51%.B.6.52%.C.7.00%.
Question
Solution
To answer this question, we need more information such as the cost of debt, cost of equity, and the company's debt and equity proportions. The Weighted Average Cost of Capital (WACC) is calculated by multiplying the cost of each capital component by its proportional weight and then summing:
WACC = (E/V) * Re + (D/V) * Rd * (1 - Tc)
Where: E = Market value of the firm's equity D = Market value of the firm's debt V = Total market value of the firm's equity and debt (E + D) Re = Cost of equity Rd = Cost of debt Tc = Corporate tax rate
Without these values, we cannot determine the company's WACC.
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