You are analyzing the cost of capital for a firm that is financed with $300 million of equity and $200 million of debt. The cost of debt capital for the firm is 9 percent, while the cost of equity capital is 19 percent. What is the overall cost of capital for the firm

Kc = = 0.054 + 0.076 x (1-t)

The overall cost of capital for the firm is 13%

Explanation:

We have the formula to calculate the overall cost for the firm as following:

In which:

So that, the overall cost of capital for the firm is:

Kc =

= 0.054 + 0.076 x (1-t)

As the revenue tax for firm is not give, assume that t = 0

=> Kc = 0.13

=> The overall cost of capital for the firm is 13%

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explanation:

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