### CFA Practice Question

There are 233 practice questions for this study session.

### CFA Practice Question

A firm has a total asset value of \$1 million and debt valued at \$400,000. What is the weighted average cost of capital if the after-tax cost of debt is 12% and the cost of equity is 15%?

A. 13.2%
B. 13.8%
C. 27.0%

WACC = .4*(.12)+.6*(.15) = .048 + .09 = .138

User Comment
morpheus918 If total value equals 1 mm, wouldn't equity have to be 1.4 mm to offset the debt?
min The value here means the asset value, not equity value.
JP09 Assets = Liabilities + Equity

\$1,000,000 = \$400,000 + \$600,000

(.12*.40) + (.15*.60) = 4.8% + 9% = 13.8%
Nikita why is everything divided by 1MM
flobeebhead Nikita, you are looking for the ratio of debt to equity
bodduna Total value(Equity + Debt) = 1mill.
2014 Wd rd + We re

that is

weight of debt * cost of debt + weight of equity * cost of equity
cfastudypl you can also: 0.12*400 + 0.15*600=138/1000=0.1380*100=13.8%
perezma i guess we forgot about tax