QUESTION

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As an Analyst, you were tasked to compute the Weighted Average Cost of Capital of various companies given the following information. Income tax rate is $25 \%$. \begin{tabular}{|l|c|c|c|c|} \hline & W Corp. & A Corp. & Co Corp. & Ca Corp. \\ \hline Risk Free Rate & $4.00 \%$ & $3.00 \%$ & $2.00 \%$ & $3.50 \%$ \\ \hline Beta & 1.25 & 1.50 & 1.30 & 1.40 \\ \hline Market Return & $12.00 \%$ & $11.00 \%$ & $10.00 \%$ & $8.00 \%$ \\ \hline Debt to Equity Ratio & 2.5 & 3 & 4 & 3.5 \\ \hline Credit Spread (in BPS) & 200 & 300 & 250 & 150 \\ \hline \end{tabular} Solve: a. What is the cost of equity of each company? b. What is the after tax cost of debt of each company? c. What is the WACC of each company?

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