MUHAMMAD ASIF

ID NO 11150
ASSIGNMENT OF STRATEGIC MANAGMENT
DATE 21/05/2020

Corporation ABS’s total market value is ( $600,000 equity + $400,000 debt )=$1 million and
its corporate tax rate is 35%.

WAAC formula = Wd.Rd (1-T) +Wps.Rps+We.Re

Wd= (debt/ total capital)

Rate of return = 0.06%

Cost of debt =0.05%

Corporate Tax = 35%

 400 bonds for $ 1.000 = 400,000

 6,000 shares of stock at $100=600,000

WACC=$600,000/$1,000,000) x.06) +($400,000/$1,000,000) x .05) *(1-0.35)=0.049=4.9%.

Corporation ABC’s weighted average cost of capital is 4.9% it show that for every $1
corporation ABC raises from investors, it will pay its investors almost 50.05 in return.