Can someone please explain why in this question only the cost of new issue is considered to calculate WACC.
And why we will not take both the debts while calculating..beacuse it is clearly asking us to calculAte WACC.
Please briefly explain why you feel this question should be reported.
Please briefly explain why you feel this answer should be reported.
Please briefly explain why you feel this user should be reported.
Because WACC is calculated for marginal cost of capital. The cost has decreased by 2% in the question that’s why 7%*(1-0.40)= 4.2%
The question is asking you to find the appropriate after tax cost of debt so here the appropriate after tax cost of debt is 7(1-0.4) = 4.2%