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11 October, 09:48

Tulloch Manufacturing has a target debt-equity ratio of. 64. Its cost of equity is 14.6 percent, and its pretax cost of debt is 9.6 percent. If the tax rate is 34 percent, what is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e. g., 32.16.) WACC 11.38 %

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  1. 11 October, 11:11
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    The company's WACC is 11.38%

    Explanation:

    After tax cost of debt = 9.6 * (1 - 0.34)

    = 6.336%

    Debt-equity ratio = Debt/Equity

    debt = 0.64*Equity

    Let equity be $x

    debt = $0.64x

    Total = $1.64x

    WACC = Respective costs*Respective weights

    = (6.336*0.64x/1.64x) + (14.6/1.64x)

    = 11.38%

    Therefore, The company's WACC is 11.38%
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