Glassmaker has pre-merger $5 in debt and $10 in equity.

Question

Rate on debt is 11%. The tax rate is 40%. The risk free rate is 6%. The levered beta is 1.36. The equity risk premium is 4%. What is Glassmakers' pre-merger WACC

Answer 1

WACC=weight of debt*cost of debt(1-Tax)+weight of equity*cost of equity

In this case, you will need to calculate cost of equity using CAPM model. If you still can't figure that out, let me know!