ABC Company’s cost of equity is 18%, its before-tax cost of debt is 8%, and its corporate tax rate is 40%. Given the following balance sheet, calculate the after-tax weighted-average cost of capital. Assets Liabilities Cash 100 Accounts payable 200 Accounts receivable 400 Accrued taxes due 200 Inventories 200 Long-term debt 400 Plant & equipment 1,300 equity 1,200 2,000 2,000 10.3% 9.7% 16.8% 14.7%
- ABC Company’s
cost of equity is 18%, its before-tax cost of debt is 8%, and its corporate tax rate is 40%. Given the following balance sheet, calculate the after-tax weighted-average cost of capital.
Assets Liabilities
Cash 100 Accounts payable 200
Accounts receivable 400 Accrued taxes due 200
Inventories 200 Long-term debt 400
Plant & equipment 1,300 equity 1,200
2,000 2,000
- 10.3%
- 9.7%
- 16.8%
- 14.7%
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
