Johansen Corporation has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is 14 percent, and the cost of debt is 8 percent. The relevant tax rate is 30 percent. What is the company's WACC?

Question

Business

Francesca Potter

22 September, 20:42

Johansen Corporation has a target capital structure of 60 percent common stock and 40 percent debt. Its cost of equity is 14 percent, and the cost of debt is 8 percent. The relevant tax rate is 30 percent. What is the company's WACC?

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Answers (1)

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Lily Mata · Answer 1

10.64%

Explanation:

The computation of the WACC is shown below:

= Weightage of debt * cost of debt * (1 - tax rate) + (Weightage of common stock) * (cost of common stock)

= (0.40 * 8%) * (1 - 30%) + (0.60 * 14%)

= 2.24% + 8.4%

= 10.64%

Simply we multiply the weightage with its capital structure so that the Accurate weighted cost of capital can be calculated