Weighted average cost of capital, Finance Basics

Below is information provided for two companies, A and B.  Assuming a risk-free rate of 2.5%, an effective tax rate of 40%, and a market risk premium of 5.5%, estimate the Weighted Average Cost of Capital (or WACC) for companies A & B.

                             Company A               Company B

Beta                          0.86                    0.78

Credit rating             AA                             A

Cost of debt

(before-tax)          6.885%                  7.125%

Debt to total

Capital                    34%                     41%

Posted Date: 2/23/2013 4:17:46 AM | Location : United States

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