Caddie Manufacturing has a target debt-equity ratio of 0.61 Its cost of equity is 12.37%, and its pretax cost of debt is 6.02%. If the tax rate is 27%, what is the company’s WACC? **(Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)**

**Recuerda que la razón de deuda a capital es simplemente dividir el total de pasivos entre el total de capital contable. También es importante que consideres la ecuación contable básica: A=P+C**

To calculate the **WACC** (Weighted Average Cost of Capital), we use the following formula:

\[
WACC = \left( \frac{E}{V} \times R_e \right) + \left( \frac{D}{V} \times R_d \times (1 - T) \right)
\]

Where:
- $ R_e $ = Cost of equity (12.37%)
- $ R_d $ = Cost of debt (6.02%)
- $ E $ = Equity
- $ D $ = Debt
- $ V $ = Total value ( $ V = E + D $ )
- $ T $ = Tax rate (27% or 0.27)

### Step 1: Determine the proportions of equity and debt

We are given the **debt-equity ratio** $ \frac{D}{E} = 0.61 $. This means for every $1 of equity, there is $0.61 of debt.

To find the proportion of debt $ \frac{D}{V} $ and equity $ \frac{E}{V} $, we can do the following:

\[
\frac{D}{E} = 0.61 \implies \frac{D}{V} = \frac{0.61}{1 + 0.61} = \frac{0.61}{1.61} \approx 0.3789
\]
\[
\frac{E}{V} = \frac{1}{1 + 0.61} = \frac{1}{1.61} \approx 0.6211
\]

### Step 2: Apply the WACC formula

Now we can substitute all the values into the WACC formula:

\[
WACC = (0.6211 \times 12.37\%) + (0.3789 \times 6.02\% \times (1 - 0.27))
\]
\[
WACC = (0.6211 \times 0.1237) + (0.3789 \times 0.0602 \times 0.73)
\]
\[
WACC = 0.07684 + 0.01667
\]
\[
WACC = 0.09351 = 9.35\%
\]

So, **Caddie Manufacturing's WACC is 9.35%**.

Would you like further explanation on any of the steps? Let me know!

### Related Questions:
1. How would the WACC change if the debt-equity ratio increased?
2. What happens to WACC if the tax rate increases?
3. Why does the cost of debt get adjusted by the tax rate in the WACC formula?
4. How would an increase in the cost of equity impact the WACC?
5. Can a company's WACC be higher than its cost of equity?

### Tip:
A lower WACC typically implies cheaper financing for the company, which is favorable for investments.

Caddie Manufacturing has a target debt-equity ratio of 0.61. Its cost of equity is 12.37%, and its pretax cost of debt is 6.02%. If the tax rate is 27%, what is the company’s WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16)

Learn how to calculate the Weighted Average Cost of Capital (WACC) for Caddie Manufacturing, with a target debt-equity ratio of 0.61, a cost of equity of 12.37%, and a pretax cost of debt of 6.02%. Includes detailed steps using the WACC formula, accounting for the 27% tax rate.

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