The capital structure of a firm is as follows: the tax rate is 42 percent. What is the after tax cost
of capital of the firm? a. 5.51% b. 9.00% c. 8.66% d. 9.5%
Solution
WACC = {[(Weight of Equity x Cost of Equity)] + [(Weight of Debt x Cost of Debt) x (1 - Tax
rate)]}
=> [(0.75 x 0.10)] + [(0.25 x 0.08) x (1 - 0.42)]
= 0.075 + 0.0116 = 0.0866 or 8.66%
So, option C is correct..
The capital structure of a firm is as follows the tax rate is 42 per.pdf
1. The capital structure of a firm is as follows: the tax rate is 42 percent. What is the after tax cost
of capital of the firm? a. 5.51% b. 9.00% c. 8.66% d. 9.5%
Solution
WACC = {[(Weight of Equity x Cost of Equity)] + [(Weight of Debt x Cost of Debt) x (1 - Tax
rate)]}
=> [(0.75 x 0.10)] + [(0.25 x 0.08) x (1 - 0.42)]
= 0.075 + 0.0116 = 0.0866 or 8.66%
So, option C is correct.
![The capital structure of a firm is as follows: the tax rate is 42 percent. What is the after tax cost
of capital of the firm? a. 5.51% b. 9.00% c. 8.66% d. 9.5%
Solution
WACC = {[(Weight of Equity x Cost of Equity)] + [(Weight of Debt x Cost of Debt) x (1 - Tax
rate)]}
=> [(0.75 x 0.10)] + [(0.25 x 0.08) x (1 - 0.42)]
= 0.075 + 0.0116 = 0.0866 or 8.66%
So, option C is correct.](https://image.slidesharecdn.com/thecapitalstructureofafirmisasfollowsthetaxrateis42per-230326113935-11cda660/85/The-capital-structure-of-a-firm-is-as-follows-the-tax-rate-is-42-per-pdf-1-320.jpg)
