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What the addition of leverage effective after-tax wacc

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Reference no: EM132735822

Problem 1: Rearden Metal currently has no debt and an equity cost of capital of 14%. Suppose that Rearden decides to increase its leverage and maintain a market debt-to-value ratio of 1/2. Suppose Rearden's debt cost of capital is 8% and its corporate tax rate is 40%. Assuming that Rearden's pre-tax WACC remains constant, then with the addition of leverage its effective after-tax WACC will be closest to:

A) 10.8%
B) 12.4%
C) 12.8%
D) 13.4%

Reference no: EM132735822

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