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Homework answers / question archive / S Help Save & ERR Sunt 1 The Two Dollar Store has cost of equity of 12
S Help Save & ERR Sunt 1 The Two Dollar Store has cost of equity of 12.9 percent. the YIM on the company bonds 52 percent and the tax rate is 40 percent if the company debt- equity ratio is 64, what is the weighted average cost of capital
Cost of equity = 12.9%
Cost of debt = YTM = 5.2%
Debt/ equity = 64%
Debt/ total capital = 64%/ 164% = 39%
Equity/ total capital = 100%/164% =61%
WACC = Cost of equity x weight of equity + cost of debt (1-tax) x weight of debt
WACC = 12.9% x 61% + 5.2% (1-0.40) x 39%
WACC = 7.869% + 1.2168%
WACC = 9.0858%
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