Using following information, calculate s weighted-average cost of capital: Pleas

Question

Using following information, calculate s weighted-average cost of capital: Please show work and methodology

EMEAS Corp.

Total Assets

$14,680

Interest-Bearing Debt

$8,124

Average borrowing rate for debt

11.5%

Common Equity:

Book Value

$5,120

Market Value

$25,700

Marginal Income Tax Rate

37%

Market Equity Beta

1.44

Cost of Equit Capital = 13.1%

Cost of debt capital = 7.245%

Weight on debt capital = 61.3%

Weight on Equity Capital = 38.7%

EMEAS Corp.

Total Assets

$14,680

Interest-Bearing Debt

$8,124

Average borrowing rate for debt

11.5%

Common Equity:

Book Value

$5,120

Market Value

$25,700

Marginal Income Tax Rate

37%

Market Equity Beta

1.44

Explanation / Answer

Assume market risk free rate = 0

WACC = Beta * were + wdrd(1-t) = 1.44 * 38.7% * 13.1% + 61.3% * 11.5% * (1-37%) = 11.74155% = Answer

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