Submitted Apr 16, 2023 at 2:06pm
Question 1
0 / 1 pts
Palo Verde, Inc., has found that its cost of equity is 18 percent, and its (before-tax) cost of debt
is 6 percent. If the firm is financed with 89 percent equity and the remainder of the financing is in
debt, what is the WACC (weighted average cost of capital) for Palo Verde if it is subject to a
25% tax rate?
Answer to the nearest 0.01%
5
16.52 margin of error +/- 0.05
To calculate after-tax cost of debt,
After-tax = cost of debt * (1 - tax rate)
The formula to calculate WACC is,
WACC = (cost of equity*weight of equity) + (after-tax cost of debt*weight of debt)
*Make sure all the numbers are in decimals
**The final answer, WACC, should be in percentage
Question 2
0 / 1 pts
Sparky, Inc., has found that its cost of equity is 17 percent, and its after-tax cost of debt is 8
percent. If the firm is financed with 88 percent equity and the remainder of the financing is in
debt, what is the WACC (weighted average cost of capital) for Sparky if it is subject to a 25% tax
rate?
Answer to the nearest 0.01%
5
15.92 margin of error +/- 0.05
The formula to calculate WACC is,
WACC = (cost of equity*weight of equity) + (after-tax cost of debt*weight of debt)
*Make sure all the numbers are in decimals
**The final answer, WACC, should be in percentage
Question 3
1 / 1 pts
Sun Devil, Inc., has found that its cost of equity is 9 percent, and its (before-tax) cost of debt is 4
percent. If the firm is financed with 60 percent equity and 40 percent debt, then what is the
WACC (weighted average cost of capital) for Sun Devil if it is subject to a 40 percent tax rate?
6.00%
7.00%
Correct!
6.36%
5.185%
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