What is Ningbo Shipping's WACC if it's after tax cost of debt is 3.5%, it's cost of retained earnings is 14%, and the firm's market value of debt is $40 million while the market value of its equity is $60 million?
A) 9.8%.
B) 3.5%.
C) 11.8%.
D) 14.7%.

Question

Quizplus · Accepted Answer

Ningbo Shipping's WACC can be calculated using the formula: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tc), where E is the market value of equity, D is the market value of debt, V is the total market value of the firm (E + D), Re is the cost of equity, and Rd is the after-tax cost of debt. Given that the tax rate (Tc) is not provided, we assume it to be zero or that the after-tax cost of debt is already given. Thus, the calculation is as follows: WACC = ($60M / $100M) * 14% + ($40M / $100M) * 3.5% = 0.6 * 14% + 0.4 * 3.5% = 8.4% + 1.4% = 9.8%.

What Is Ningbo Shipping's WACC If It's After Tax Cost