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Take It All Away has a cost of equity of 10.96 percent, a pretax cost of debt of 5.46 percent, and a tax rate of 40 percent. The company's capital structure consists of 72 percent debt on a book value basis, but debt is 38 percent of the company's value on a market value basis. What is the company's WACC?
A) 9.46%
B) 8.87%
C) 7.24%
D) 12.06%
E) 8.04%

Respuesta :

Answer:

8.04%

Explanation:

The formula to compute WACC is shown below:

= Weightage of debt × cost of debt × ( 1- tax rate)  + (Weightage of  common equity × (cost of common equity)

= (0.38 × 5.46%) × ( 1 - 40%)  +  (0.62 × 10.96%)

= 1.24488% + 6.7952%

= 8.04%

The weightage of common equity would be

= 100% - 38%

= 62%

This is the answer and the same is not provided in the given options

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