Question

Taxes and WACC. Rainbow in the Dark Manufacturing has a target debt-equity ratio of .65. Its cost of equity is 13%, and its cost of debt is 8%. If the tax rate is 35%, what is the company's WACC?

Answer 1

(1/1.65) x .13 + (.65/1.65) x .08 x .65

= .099273
= 9.93%