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Investment advice and corporate finance
Module 12Investment Management and Corporate FinanceA company's market-value capital is 60% equity at a cost of 12% and 40% debt at a pre-tax cost of 6%. The tax rate is 24%. What is its WACC?
WACC = 0.60 × 12% + 0.40 × 6% × (1 − 0.24) = 7.20% + 1.824% = 9.02%. 9.60% ignores the tax shield on interest. 7.87% applies the tax adjustment to the cost of equity instead of the cost of debt. 7.54% swaps the weights (40% equity, 60% debt). Source: SIDC Module 12 Study Outline (Jul-Dec 2026) Section 8 (Topics 1, 3, 4, 8, 16, 17); Brealey, Myers and Allen, Principles of Corporate Finance (as at October 2026).
Leaving out the tax shield on debt.
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