What is weighted average cost of capital-financial distress

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BAB Inc. has a book value of debt of $500,000. The market value of debt is $550,000. Its pre-tax cost of debt is 10%, and its beta is equal to 2. The tax rate is 40%. The firm has an annual EBIT of $200,000. In the market, you observe that T-bills are being sold to yield 1%, and the S&P/TSX Composite Index is expected to yield 6%. What is BAB's weighted average cost of capital? Assume there is no cost of financial distress.

Reference no: EM131052265

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