Gaucho Services starts life with all-equity financing and a cost of equity of 14%. Suppose it refinances to the following market-value capital structure:

Debt (D)	44%	at rD = 8.9%
Equity (E)	56%

Use MM’s proposition 2 to calculate the new cost of equity. Gaucho pays taxes at a marginal rate of T_c = 40%. Calculate Gaucho’s after-tax weighted-average cost of capital. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

After-tax WACC %

Answer rating: 100% (QA)

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