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The cost of capital

Total market value = $9.3m + $0.729m = $10.029m

V e V d
WACC = ––––––– k e + ––––––– ‘k d(1 – T)’
V e + V d V e + V d

WACC = $9.3m/$10.029m × 11.3 + $0.729m/$10.029m × 7.7

WACC = 11.0%

Illustrations and further practice

Now try TYU questions 17 and 18 from Chapter 17.

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