RatedrillWeighted average cost of capital
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
A company has equity worth $2,500,000 and debt worth $6,000,000 at market value. Its cost of equity is 16%, its pre-tax cost of debt is 7.5%, and its tax rate is 25%. What is its WACC?
What this problem teaches
WACC = E/V × cost of equity + D/V × cost of debt × (1 - tax rate), with V = E + D.
A hint if you get stuck
WACC = E/V × cost of equity + D/V × cost of debt × (1 - tax rate), with V = E + D.
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