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smu mba solved assignments for Q. The following data is available in respect of a company : Equity Rs.10lakhs,cost of capital 18% Debt Rs.5lakhs,cost of debt 13% Calculate the weighted average cost of funds taking market values as weights assuming tax rate as 40%


Solution:
Equity             = Rs.10lakhs, Cost of capital = 18%
Debt                = Rs.5lakhs,    Cost of debt    = 13%
Total                = Rs 15 lakh

Tax rate as      = 40%

We = 10 / 15 = 0.67

Ke = 18% = 0.18

Wd = 5/15 = 0.33

Kd = I (1-T)

WACC = We Ke + Wp Kp +Wr Kr + Wd Kd + Wt Kt

= 0.67*.18 + 0 + 0 +0.33*13(1-.40) + 0

= 0.146 or 14.6%

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