Company abc wants to invest in a swedish manufacturing

Reference no: EM13483669 , Length: 20

Scenario: Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio of 60%. Company ABC's cost of equity capital is 16% and its before-tax borrowing rate is 12.3%. As the CFO of ABC, you have to justify the profitability of this investment.

Your Task: Given a marginal tax rate of 45%, calculate:

1. The weighted average cost of capital (WACC)

2. The cost of equity for an equivalent all-equity financed firm

Reference no: EM13483669

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