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Thank you so much ! Here is the definition for the weighted average cost of capital (WACC): The WACC is the expected average future cost
Thank you so much ! Here is the definition for the weighted average cost of capital (WACC): The WACC is the expected average future cost of capital over the long run; found by weighting the cost of each specific type of capital by its proportion in the firm's capital structure. Using this definition and the WACC equation we presented in class, answer the following questions: (a) Why does the definition specifically state the "long run cost of capital"? (b) A firm's long run target of debt and equity capital is respectively, 40-60. Under this long run capital structure, the after-tax cost of debt is 5% and after-tax cost of equity is 13%. Calculate the WACC. (c) The firm's board of directors is considering a long run capital change from a 40-60 mix of debt and equity capital to 60% debt. Using this new information and the part (b) after-tax cost of debt and equity, calculate the firm's new WACC and clearly state why it is lower than the WACC you calculated in part (b)
Thank you so much !
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