You are tasked with estimating the cost of capital for the Coca-Cola Company. Coca-Cola’s regression beta is 1.01 and their D/E ratio is 0.3. Assume a corporate tax rate of 35%, an equity market risk premium of 6%, and a risk free rate of 3%. Coca-Cola’s cost of debt is 4.78%.
What is Coca-Cola’s WACC?
Suppose Coca-Cola plans to increase their D/E ratio to 0.4. Calculate what impact this will have on Coca-Cola’s WACC.