Thread: Beta, WACC stuff, need a little help :)

Beta = 1.5
gearing - 30%
cost of debt = 7%
risk free = 4%
market risk = 6%
corp tax = 40%




At 30% gearing whats the pre tax and after tax wacc?



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thats the question im facing and i can get as far as the wacc


I first found the cost of equity


Rf + B ( Rm-Rf

0.04 + 1.5 (0.06 - 0.04) = 0.07 or (7%)



but i get stuck on the WACC section


Ke(We) + Kd(Wd)


i have this 0.07(70%) + (0.07)(30%)



where the 70% comes from (gearing% (30 - 100))


And ther Kd (0.07) comes from the cost of debt? (am i right here)


so am i right in saying WACC before tax = 0.07 or 7% ???

You've worked out the WACC without tax.

The formula for WACC with tax (corporate tax) is:

WACC = Ke(We) + KdWd(1 - Tc)

Where Tc is the corporate tax