Six AM Manufacturing has a target (market value) debt—equity ratio of 0.57. Its cost of equity is 18 percent, and its cost of debt is 10 percent. If the tax rate is 32 percent, what is the company's WACC?
NOTE: You need to convert the D-E ratio into the capital structure weights before you can use the WACC equation. We saw this in the Financial Ratios material when we used Debt-Asset and Equity-Asset ratios to calculate the D-E ratio.
13.24%
10.87%
13.93%
11.62%
14.63%