Please share whether you agree or disagree with my view of the use of the company’s capital in the scenario below. Explain your reasoning.
I am opening a tutoring business using $5000 (D) of debt in the form of a loan from my bank at 12% (Rd) interest. I will also use $3000 (E) dollars of my own equity which I will assess at a cost of 11% (Rd). My tax rate will be 32% (T). The WACC is as follows WACC = [E/E+D]*Re + [D/E+D]*Rd (1-T) WACC = [3000/(3000+5000)] x 0.11 + [5000/(3000+5000)] x 0.12 x ( 1 […]
