Answer:
14.33%
Explanation:
WACC is the average cost of capital of the firm based on the weightage of the debt and weightage of the equity multiplied to their respective costs.
According to WACC formula
WACC = ( Cost of equity x Weightage of equity ) + ( Cost of debt ( 1- t) x Weightage of debt )
First Calculate the Weightage
Market Value of Shares = EBIT / cost of equity = $165,000 / 14.7% = $1,122,449
Value of Debt = $55,000
Total = $1,122,449 + $55,000 = $1,177,449
Weightage
Equity = $1,122,449 / $1,177,449 = 0.9533
Debt = 0.0467
Placing values in the WACC formula
WACC = ( 14.7% x 0.9533 ) + ( 8.6% ( 1 - 0.21 ) x 0.0467 )
WACC = 14.01% + 0.32% = 14.33%
