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Lannister Manufacturing has a target debt-equity ratio of .85. Its cost of equity is 13 percent, and its cost of debt is 7 percent. If the tax rate is 21 percent, what is the companyâs WACC? (Do not round intermediate calculations and enter your

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TomShelby

Answer:

WACC 9.56784%

Explanation:

[tex]WACC = K_e(\frac{E}{E+D}) + K_d(1-t)(\frac{D}{E+D})[/tex]

We should remember that

Debt to Equity = D/E = 0.85

So D = 0.85

and E = 1

D + E = 1.85

Ke 0.13

Equity weight 1/1.85

Kd 0.07

Debt Weight 0.85/1.85

t 0.21

[tex]WACC = 0.13(1/1.85) + 0.07(1-0.21)(0.85/1.85)[/tex]

WACC 9.56784%

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