Assume the following data for U&P Company: Debt (D)= $100 million; Equity (E)= $300 million; r_D = 6%; r_E = 12%; and T_C = 30%. Calculate the after-tax weighted average cost of capital (WACC): A)10.5 percent B)15.00 percent C)10.05 percent D)9.45 percent

Question

Quizplus · Accepted Answer

First, we need to calculate the cost of equity:
rE = rS1U1B1ES1U1B0 + TS1U1B1C(S1U1B0 - rS1U1B1B0)
rE = 12% + 30%(6% - 0%)
rE = 12% + 1.8%
rE = 13.8%
Next, we need to calculate the WACC:
WACC = (E/(D+E))rE + (D/(D+E))rD(1-T)
WACC = (300/(100+300))(13.8%) + (100/(100+300))(6%)(1-0.30)
WACC = 10.05%
Therefore, the best choice is C, with an after-tax WACC of 10.05%.

Assume the Following Data for U&P Company: Debt (D)= $100