Taggart Transcontinental currently has no debt and an equity cost of capital of 16%. Suppose
that Taggart decides to increase its leverage and maintain a market debt - to-value ratio of 1/3.
Suppose Taggartʹs debt cost of capital is 9% and its corporate tax rate is 35%. Assuming that
Taggartʹs pre-tax WACC remains constant, then with the addition of leverage its effective
after-tax WACC will be closest to:
A) 13.0% B) 16.0% C) 15.0% D) 12.9%
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