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

$\text{WACC} = \left( \frac{E}{V} \right) \cdot r_E + \left( \frac{D}{V} \right) \cdot r_D \cdot (1 - T_c)$

Where:

• $E$ is the market value of equity
• $D$ is the market value of debt
• $V$ is the total value of the firm ( $V = E + D$ )
• $r_E$ is the cost of equity
• $r_D$ is the pretax cost of debt
• $T_c$ is the corporate tax rate

Step 1: Determine the proportion of equity and debt

The debt-equity ratio is given as 0.51, meaning:

$\frac{D}{E} = 0.51$

Using this, we can express the proportions of debt and equity in terms of total value $V$:

$D = 0.51E$ $V = E + D = E + 0.51E = 1.51E$

Thus, the proportion of equity and debt are:

$\frac{E}{V} = \frac{E}{1.51E} = \frac{1}{1.51} \approx 0.6623$ $\frac{D}{V} = \frac{D}{1.51E} = \frac{0.51E}{1.51E} = \frac{0.51}{1.51} \approx 0.3377$

Step 2: Apply the WACC formula

Now, plug in the values:

• $r_E = 10.96\%$
• $r_D = 7.65\%$
• $T_c = 27\%$
• $\frac{E}{V} = 0.6623$
• $\frac{D}{V} = 0.3377$

$\text{WACC} = \left( 0.6623 \times 10.96\% \right) + \left( 0.3377 \times 7.65\% \times (1 - 0.27) \right)$

Step 3: Calculate each component

• For the equity part:
  $0.6623 \times 10.96\% \approx 7.265 \%$

• For the debt part:
  $0.3377 \times 7.65\% \times (1 - 0.27) \approx 1.880 \%$

Step 4: Add the components

$\text{WACC} \approx 7.265\% + 1.880\% = 9.145\%$

Final Answer:

The company's WACC is 9.15%.

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Would you like further details or clarifications?

Here are five related questions to consider:

1. How does the debt-equity ratio influence WACC?
2. What happens to WACC if the tax rate increases?
3. How is WACC affected if the company increases its leverage (i.e., more debt)?
4. What is the difference between WACC and cost of equity?
5. How does a company's risk profile affect its WACC?

Tip: A lower WACC indicates that a company can finance projects more cheaply, making investment opportunities more attractive.