Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Oceania Co
Oceania Co. has a before-tax cost of debt of 4% and cost of common equity of 10%. The company's marginal tax rate is 30%. The company does not have any preferred stock. the company's capital structure has 20% debt and 80% common equity, then Oceania's weighted average cost of capital (WACC) is closest to 0 9.6% O 8.6% 8.8% O 7.8%
| Weight of equity = 1-D/A |
| Weight of equity = 1-0.2 |
| W(E)=0.8 |
| Weight of debt = D/A |
| Weight of debt = 0.2 |
| W(D)=0.2 |
| After tax cost of debt = cost of debt*(1-tax rate) |
| After tax cost of debt = 4*(1-0.3) |
| = 2.8 |
| WACC=after tax cost of debt*W(D)+cost of equity*W(E) |
| WACC=2.8*0.2+10*0.8 |
| WACC =8.6% |
