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
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?
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% ???