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A company is 40% financed by risk-free debt. The interest rate is 10%, the expected market risk premium is 8%, and the beta of the company's common stock is .5.
Risk Free Debt Interest Rate Market Risk Premium Beta Taxes40% 10% 8% 0.5 35%
a. What is the company cost of capital?b. What is the after-tax WACC, assuming that the company pays tax at a 35% rate?
Step 1:r(d)= Fr(e)= CD/V CE/V C
Step 2:a. Formula Calculation Cost of Capital T C
b. WACC T C
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