Sixx AM Manufacturing has a target debt-equity ratio of 0.61. Its cost of equity is 19 percent,...

Question:

Sixx AM Manufacturing has a target debt-equity ratio of 0.61. Its cost of equity is 19 percent, and its cost of debt is 10 percent. If the tax rate is 33 percent, what is the company's WACC?

Weighted Average Cost of Capital:

A company's capital structure consists of several sources of funds such as Common stock, Preferred stock and debt. Each source of fund has its own cost. Weighted Average Cost of Capital is the weighted average cost of all these sources of funds.

Answer and Explanation:

The company's WACC is 14.3%

  • Cost of equity, rs = 19%
  • Cost of debt, rd = 10%
  • tax rate, t = 33% = 0.33

Debt to equity ratio = 0.61

  • weight of debt, wd ...

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Weighted Average Cost of Capital

from Finance 101: Principles of Finance

Chapter 14 / Lesson 5
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