Problem 10.020 - Calculate before-tax and after-tax WACC To understand the advantage of debt capital from a tax perspective in the United States, determine the before-tax and approximated after-tax weighted average costs of capital if a project is funded 25.00% -75.0% (D-E mix) with debt capital borrowed at 9.00% per year. A recent study indicates that corporate equity funds earn 21.00% per year and that the effective tax rate is 30.00% for the year. The tax advantage reduces the WACC from % per year. % to
Added by Thomas R.
Step 1
00% D = 25.00% Re = 21.00% Rd = 9.00% WACC = (0.75 * 0.21) + (0.25 * 0.09) WACC = 0.1575 + 0.0225 WACC = 0.18 or 18.00% Show more…
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With the information below, calculate the WACC (weighted average cost of capital). Show all calculations. The company projected its earnings before interest and taxes to be $12 million for the next year with a projected tax rate of 40%. The company's cost of equity was 16%. The company could issue at least $30 million of long-term debt at a cost of 9%. Currently, 75% of the equity has been issued. It has been determined that a good approximation of the personal tax rate on debt income was 28% and for stock income was 20%. The following estimates were developed showing the cost of debt and cost of equity that included an increasing premium for financial distress and agency costs as the debt ratio increases. Debt ratio kd ks 0% ---- 16.0% 10% 9.00% 17.0% 20% 9.25% 17.8% 30% 9.75% 19.0% 40% 10.50% 20.5% 50% 12.00% 22.0% 60% 15.00% 26.0% 70% 20.00% 30.0% 80% 30.00% 40.0% 90% 50.00% 60.0%
Akash M.
Exhibit 3 Mary Washington Pediatrics Atwood's Financial Forecast for Mary Washington Pediatrics (financial figures in thousands of US dollars) 2016 2017 2018 2019 2020 2021 2022 2023 Revenue growth 0.5% 3.0% 5.0% 5.0% 5.0% 3.0% 3.0% 2.0% Operating expenses/ revenue 57.4% 57.4% 57.0% 56.5% 56.0% 54.0% 53.0% 53.0% Net working capital 315.9 272.1 214.2 176.5 181.9 185.5 189.2 193.0 Net equipment 326.3 375.1 415.1 455.1 475.1 498.2 484.2 464.6 Depreciation 10.4 14.0 20.0 28.0 37.0 42.0 42.9 42.9 Capital expenditures 4.1 62.8 60.0 68.0 57.0 65.1 28.9 23.3 Net revenue 1,602 1,682 1,766 1,854 1,910 1,967 2,007 Operating expenses 920 959 998 1,038 1,031 1,043 1,064 Depreciation 14 20 28 37 42 43 43 Physician salary 500 525 551 579 596 614 626 Operating profit 168 178 189 200 240 268 274
Calculate the weighted average cost of capital (WACC) based on the following information: the capital structure weights are 50% debt and 50% equity; the interest rate on debt is 10%; the required return to equity holders is 20%; and the tax rate is 30%
Haricharan G.
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