<p><span class="math-container">$V=E+D=300+100=400$</span></p>

<p>So </p>

<p><span class="math-container">$\frac{E}{V}=\frac{3}{4}$</span> and </p>

<p><span class="math-container">$\frac{D}{V}=\frac{1}{4}$</span></p>

<p>You probably overlooked one zero and thought equity was 30, but in your question you yourself state that <span class="math-container">$E=300$</span>.</p>

CC BY-SA 4.0
2019-05-31T12:46:58.477Z
What a dumb mistake ! Thanks anyways
Sara Salvante
CC BY-SA 4.0
2019-05-31T12:48:17.767Z
you're welcome!
user18214
CC BY-SA 4.0
2019-05-31T12:43:43.183Z
2019-05-31T12:43:43.183Z
user18214
<p>So i have this question:</p>

<p>Assume the following data for U&amp;P Company: Debt (D) = <span class="math-container">$100 million; Equity (E) =$</span>300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC):</p>

<p>I know that the formula is indeed</p>

<p>After tax WACC=(1-TC)rD(D/V) + rE(E/V).</p>

<p>If i correctly replace all the numbers i get that the after tax wacc is 6%. For example, in order to get D/V i do 100/130 since V=E+D=130.</p>

<p>However on the answer sheet it states that :</p>

<p>After tax WACC=  (1/4)(1 - 0.3)(6) + (3/4)(12) = 10.05%. </p>

<p>I do not understand this answer; where is the (1/4) and the (3/4) coming from ? Shouldn't D/V=100/130 and E/V=30/130? </p>

<p>Thanks for the help!</p>

<taxation><debt><capital-returns><opportunity-cost>
How to calculate the after tax WACC
Sara Salvante
# How to calculate the after tax WACC

(Asked by: username_0 on 2019-05-31)

So i have this question:

Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) =$300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC):

I know that the formula is indeed

After tax WACC=(1-TC)rD(D/V) + rE(E/V).

If i correctly replace all the numbers i get that the after tax wacc is 6%. For example, in order to get D/V i do 100/130 since V=E+D=130.

However on the answer sheet it states that :

After tax WACC= (1/4)(1 - 0.3)(6) + (3/4)(12) = 10.05%.

I do not understand this answer; where is the (1/4) and the (3/4) coming from ? Shouldn't D/V=100/130 and E/V=30/130?

Thanks for the help!

**Tags:** taxation, debt, capital-returns, opportunity-cost


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## 1 answers

### Answer by username_1 on 2019-05-31. Score: 0 | Accepted answer

$V=E+D=300+100=400$

So

$\frac{E}{V}=\frac{3}{4}$ and

$\frac{D}{V}=\frac{1}{4}$

You probably overlooked one zero and thought equity was 30, but in your question you yourself state that $E=300$.

> **Comments:**
> **username_0**: What a dumb mistake ! Thanks anyways  
> **username_1**: you're welcome!  

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