Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield.What will be JB’s WACC? (Round your answer to 2 decimal places.)WACC: ___.__%

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Asked Nov 6, 2019
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Suppose that JB Cos. has a capital structure of 78 percent equity, 22 percent debt, and that its before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield.

What will be JB’s WACC? (Round your answer to 2 decimal places.)

WACC: ___.__%

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Expert Answer

Step 1

WACC refers to a firm's weighted average cost of capital. It is the rate that a firm  pays to its security holders in order to finance its assets.

Step 2
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Weighted average cost of capital is calculated as: WACC=(Cost of equity)x (Weight of equity)+(Before tax cost of debt) x(Weight of debt)x(1-Tax rate)

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Step 3

Given that;
Cost of equity is 16%
Weight of equity is 78%
Before tax cost of debt is 12%
Weight of d...

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