A company has total assets of pound 120m The market value of its equity is pound 40m and the value of its outstanding bonds is pound 80m The cost of equity is 12 and the bondholders expect a return of 4 If the corporate tax rate is 35 , calculate the company rsquo s weighted average of cost of capi...

The companys weighted average cost of capital WACC can be calculated as follows ...

A company has total assets of £120m. The market value of its equity is £40m and the

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Question:

A company has total assets of £120m. The market value of its equity is £40m and the value of its outstanding bonds is £80m. The cost of equity is 12% and the bondholders expect a return of 4%. If the corporate tax rate is 35%, calculate the company’s weighted average of cost of capital.
Explain what the tax shield is.