Miller Manufacturing has a target debt–equity ratio of .60. Its cost of equity i

Question

Miller Manufacturing has a target debt–equity ratio of .60. Its cost of equity is 15 percent, and its cost of debt is 4 percent. If the tax rate is 35 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  

Miller Manufacturing has a target debt–equity ratio of .60. Its cost of equity is 15 percent, and its cost of debt is 4 percent. If the tax rate is 35 percent, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Debt/Equity = 0.60
Cost of debt = Rd*(1-t)=4*(1-0.35)=2.6%
Cost of equity = 15%

Weight Cost of capital Debt 0.6 0.375 2.6 0.975 Equity 1 0.625 15 9.375 WACC 10.35

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