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Question 1 WACC
_ Step 1. Calculate the value of each security as a proportion of the firm’s market value – i.e. D/(D+E); E/(D+E), etc.
_ Step 2. Determine the required rate of return on each security – i.e. Rd for debt, Re for equity, etc (make sure you calculate after-tax cost of debt).
_ Step 3. Calculate a weighted average after tax return on the debt and the return on the equity – i.e. WACC.
Applying the Three-Step approach to compute WACC above, compute the WACC using the following information.
Hint: Review Class #6 – Part 2, including the WACC.
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