Question
A firm has EBIT of ₹10 lakh, tax rate 30%, cost of
equity 15%, and cost of debt 10%. It has 50% debt and 50% equity. Calculate WACC (assuming book values = market values).Solution
WACC = Ke × E/V + Kd × (1−T) × D/V = 15% × 0.5 + 10% × (1−0.3) × 0.5 = 7.5% + 3.5% = 11%.
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