14-05-2017
Business

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The Gupta Company's cost of equity 16 percent. It's before-tax cost of debt is 13 percent, and it's marginal tax rate is 40 percent. The stock sells at book value. Using the following balance sheet, calculate Gupta's after-tax weighted average cost of capital:

Assets. Liabilities is and Equity
Cash. $120. Long-term debt $1,152
Accounts receivable. 240. Equity 1,728
Inventories. 360
Net plant and equipment. 2,160.
Total assets. 2,880. Total Liabilities and equity. $2,880

Respuesta :

Aliwohaish12 Aliwohaish12

14-05-2017

After-tax weighted portion of debt: 1152/2880 = 40% x (13% x (1-.40))= 40% x 7.8% = 3.12%
+weighted portion of common equity: 1728/2880 = 60% x 16% = 9.6%
= 12.72% WACC

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