Recalculate the equity cost of capital

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Reference no: EM132008346

Question: NatNah, a builder of acoustic accessories, has no debt and an equity cost of capital of 16%. Suppose NatNah decides to increase its leverage and maintain a market debt-to-value ratio of 0.6. Suppose its debt cost of capital is 8% and its corporate tax rate is 33%. If NatNah's pretax WACC remains constant, what will its (effective after-tax) WACC be with the increase in leverage? (Hint: While the pretax WACC remains the same, the equity cost of capital increases when lower cost debt is added to the capital structure. However, you will not need to recalculate the equity cost of capital since the overall pretax WACC is assumed to remain constant even after the addition of? debt.)

The effective after-tax WACC will be _____%.(Round to two decimal places.)

Reference no: EM132008346

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