Lannister Manufacturing has a target debtequity ratio of .65. Its cost of equity
ID: 2763610 • Letter: L
Question
Lannister Manufacturing has a target debtequity ratio of .65. Its cost of equity is 16 percent, and its cost of debt is 5 percent. If the tax rate is 34 percent, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Lannister Manufacturing has a target debtequity ratio of .65. Its cost of equity is 16 percent, and its cost of debt is 5 percent. If the tax rate is 34 percent, what is the company’s WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Explanation / Answer
Debt equity is 0.65, so debt% is 0.65/1.65 = 39.39% equity is 60.61%
WACC is % debt ×cist ofdebt + % equity×cost of equity
=39.39%×5%*(1-0.34) + 60.61%×16% = 1.3% + 9.7% = 11%
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