Pacifica Inc. is an import-export company specializing in products from Canada, Australia, and the West Coast. It can borrow in the debt market at 6%. Its cost of equity with 30% D/V ratio is 11%. Its corporate tax rate is 25%
If the M&M world of taxes holds true, what is the WACC for the firm with a 30% D/V financing?
A) 7.90%
B) 8.75%
C) 9.05%
D) 9.44%
Answer: C
Explanation: C) WACC = × Re + × Rd × (1 - Tc) = .70 × 11% + .30 × 6% × (1 - 0.25) = 7.70% + 1.35% = 9.05%.
Business
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