WACC Formula
=
Wd
\times Kd\times (1-T)+
Wps
\times Kps+
We
\times Ke
Where Wd = weight of Debt
Kd=
before tax cost of debt
Kdx(1-T)=
after-tax cost of debt
Wps = weight of preferred stock.
Kps = cost of preferred stock
We=
weight of common equity
Ke=
cost of common equity
Part A: The Weiser Company's bonds are currently trading at yield to maturity of
12%
The firm's marginal tax rate is
35%
tax and it believes it could issue at par value new bonds that would provide a similar yield to maturity. What is Weiser's after-tax cost of debt?
Use skeleton provided below (do your work in gray and yellow cells):
Befor-tax cost of debt (Kd)
Tax Rate (T)
After-tax Cost of Debt