Your firm is considering acquiring a small company. The equity beta of the small company is...

   

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Your firm is considering acquiring a small company. The equity beta of the small company is 1.27 and the small cap premium is 3.81%. The expected return on the market portfolio is 13.20% and the risk-free rate is 3.77%. The target total debt ratio of the firm you plan to acquire is 30% and its pre-tax cost of debt is 8.18%. If the corporate tax rate is 28%, calculate the weighted average cost of capital that you should use to evaluate the target firm. Your firm is considering acquiring a small company. The equity beta of the small company is 1.27 and the small cap premium is 3.81%. The expected return on the market portfolio is 13.20% and the risk-free rate is 3.77%. The target total debt ratio of the firm you plan to acquire is 30% and its pre-tax cost of debt is 8.18%. If the corporate tax rate is 28%, calculate the weighted average cost of capital that you should use to evaluate the target firm.

Answer rating: 100% (QA)

To calculate the weighted average cost of capital WACC well use the following formula WACC EVRe DVRd... View the full answer