The Black Bird Company plans an expansion. The expansion is to be financed by se
ID: 2652219 • Letter: T
Question
The Black Bird Company plans an expansion. The expansion is to be financed by selling $87 million in new debt and $5 million in new common stock. The before-tax required rate of return on debt is 11.39% percent and the required rate of return on equity is 13.96% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?
Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units" box). the answer is 7.87%. How did they come up with that answer?
Explanation / Answer
cost weights weighted cost after tax Debt [11.39(1-.34)] 7.5174 .9457 [87/(87+5)] 7.11 equity 13.96 .0543 [5/(87+5)] 0.76 WACC 7.87
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