Firm weighted average cost of capital, Accounting Basics

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Firm weighted average cost of capital

Problem:

A firm, based on market value, has 70% stock financing and 30% debt. The cost of equity financing averages 13%. The pre-tax cost of debt financing averages 7%. Tax rate is .40.

Required:

Question: Calculate the firm's weighted average cost of capital (WACC) from this data.

Note: Show supporting computations in good form.

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Accounting Basics: Firm weighted average cost of capital

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Accounting Basics: Firm weighted average cost of capital

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