$1.00 Weighted Average Cost of Capital for an unleveraged firmFound in Business: Finance
Chapter 1, # 0
Weighted Average Cost of Capital for an unleveraged firm
Suppose a firm is unleveraged and has an unleveraged required return, r, of 15%. The firm borrows 30% of the value of the firm at rd = 8%. Because of the financial leverage, re becomes 18%. The firm pays corporate taxes at a rate of 35% but otherwise operates in perfect capital market. What is the firm's WACC?
(1 − L)re + L(1 − T)rd