Acme Corporation is a multination enterprise with main markets in North America. Acme is the leader in its industry in optical equipment. The firm is a mid-sized entity with 10,200,000 shares outstanding.

Extracts of the firm's balance sheet shows:

Total debt                                            $35,500,000

Book value of equity capital               $53,250,000

Market capitalization                          $82,850,000

The market rates on treasury securities is 7.15%, and the general market rates are 10.50%.  The firm is able to borrow at 8.75%. The firm's beta is 1.20 %. The effective corporate tax rate of the firm is 30%.

Required:

Using the information provided, calculate the Weighted Average Cost of Capital (WACC) for Acme Corp.                                              
Briefly explain how a multinational firm is able to reduce its cost of capital.

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC for Acme Corp we need to determine the cost o... View the full answer