Part 1CoffeeCarts has a cost of equity of 15.8 %15.8%, has an effective cost of debt of 3.6 %3.6%, and is financed 73 %73% with equity and 27 %27% with debt. What is this firm's WACC? Part 1CoffeeCarts's WACC is [input]enter your response here %. (Round to one decimal place.)

Question

Part 1CoffeeCarts has a cost of equity of 15.8 %15.8%​, has an effective cost of debt of 3.6 %3.6%​, and is financed 73 %73% with equity and 27 %27% with debt. What is this​ firm's WACC? Part 1​CoffeeCarts's WACC is [input]enter your response here ​%. ​(Round to one decimal​ place.)

BlackTom AI · Accepted Answer

WACC is calculated as the weighted average of the cost of equity and the cost of debt (after any tax adjustment). Because the problem gives an “effective cost of debt” and no corporate tax rate, use the stated costs directly in the WACC formula:

1. Relevant knowledge points and concepts
- WACC formula: WACC = w_e * r_e + w_d * r_d (if r_d is already an after‑tax or “effective” cost of debt).
- Weights must be decimals (not percentages) and sum to 1.
- If the cost of debt were a pre‑tax rate, you would use r_d*(1 − T_c). No tax rate is provided here, and “effective cost of debt” implies it already reflects tax effects.

2. Step‑by‑step reasoning and calculations
- Convert percentages to decimals for calculation:
  - Cost of equity r_e = 15.8% = 0.158
  - Cost of debt r_d = 3.6% = 0.036
  - Weight of equity w_e = 73% = 0.73
  - Weight of debt w_d = 27% = 0.27
- Multiply each cost by its weight:
  - Equity contribution = 0.73 × 0.158 = 0.11534 (11.534%)
  - Debt contribution = 0.27 × 0.036 = 0.00972 (0.972%)
- Sum the contributions:
  - WACC = 0.11534 + 0.00972 = 0.12506 = 12.506%

3. Rounding and final value
- Rounded to one decimal place: 12.5%.

4. Why this is correct
- The calculation directly applies the WACC formula using the given “effective” cost of debt (so no tax adjustment needed). All weights and rates were converted and combined correctly.

5. Why other approaches would be incorrect
- Applying an extra (1 − tax) factor without a stated tax rate would double‑count tax effects since the debt cost is already given as effective. Using wrong weights or failing to convert percentages to decimals would produce incorrect numeric results.

Conclusion: CoffeeCarts’s WACC = 12.5%, which matches the provided answer.

Part 1CoffeeCarts has a cost of equity of 15.8 %15.8%, has an effective cost of debt of 3.6 %3.6%, and is financed 73 %73% with equity and 27 %27% with debt. What is this firm's WACC? Part 1CoffeeCarts's WACC is [input]enter your response here %. (Round to one decimal place.)多项填空题

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