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Summit Builders has a market debt-equity ratio of 1.50 , a corporate tax rate of 30%, and pays 9% interest on its debt. By what amount does the interest tax shield from its debt lower Summit's WACC? WACC is lowered by %. (Round to two decimal places.) Plan: rate. rU=rEE+DE+rDE+DD Execute: If debt-equity ratio equals 1.85 and debt is 1.85 , equity must be 1 . To determine the debt-to-value ratio, use the following formula: Debt-to-ValueRatio=E+DD where: D=marketvalueofdebt E=marketvalueofequity Therefore, Debt-to-ValueRatio=1+1.851.85=0.649 The debt-to-value ratio is 0.649 . To find the amount that the interest tax shield from its debt lowers Summit's WACC, use the following formula: WACC=WACCpre-taxD+EDTCrD where D is the amount of debt, E is the amount of equity, TC is the corporate tax rate, and rD is the cost of debt. Therefore, WACC=WACCpre-tax0.64910%37%WACC=WACCpre-tax2.40% The WACC is lowered by 2.40%. Summit Builders has a market debt-equity ratio of 1.50 , a corporate tax rate of 30%, and pays 9% interest on its debt. By what amount does the interest tax shield from its debt lower Summit's WACC? WACC is lowered by %. (Round to two decimal places.) Plan: rate. rU=rEE+DE+rDE+DD Execute: If debt-equity ratio equals 1.85 and debt is 1.85 , equity must be 1 . To determine the debt-to-value ratio, use the following formula: Debt-to-ValueRatio=E+DD where: D=marketvalueofdebt E=marketvalueofequity Therefore, Debt-to-ValueRatio=1+1.851.85=0.649 The debt-to-value ratio is 0.649 . To find the amount that the interest tax shield from its debt lowers Summit's WACC, use the following formula: WACC=WACCpre-taxD+EDTCrD where D is the amount of debt, E is the amount of equity, TC is the corporate tax rate, and rD is the cost of debt. Therefore, WACC=WACCpre-tax0.64910%37%WACC=WACCpre-tax2.40% The WACC is lowered by 2.40%