Abc corporation has the following information: total market value of a company’s stock: $650 million total market value of the company’s debt: $150 million cost of equity: 10% cost of debt: 8% corporate tax rate is 35 percent what is the wacc of abc corporation?
a. 8.125%
b. 9.10%
c. 9.75%
d. 10.05%
e. 10.50%

option (B) 9.10%

Explanation:

Data provided in the question:

Total market value of a company’s stock = $650 million

Total market value of the company’s debt = $150 million

Cost of Equity, ke = 10% = 0.10

Cost of Debt, kd = 8% = 0.08

Corporate tax rate, T = 35%

Now,

WACC =

on substituting the respective value, we get

WACC =

= 0.08 × 0.65 × 0.1875 + 0.10 × 0.8125

= 0.00975 + 0.08125

= 0.091

or

= 0.091 × 100% = 9.10%

Hence,

The correct answer is option (B) 9.10%

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