W4A4 Scenario: Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio of 60%. Company ABC's cost of equity capital is 16% and its before-tax borrowing rate is 12.3%. As the CFO of ABC, you have to justify the profitability of this investment. Your Task: Given a marginal tax rate of 45%, calculate: The weighted average cost of capital (WACC) The cost of equity for an equivalent all-equity financed firm Grading Criteria Maximum Points Accurately calculated the weighted average cost of capital (WACC). 25 Accurately calculated the cost of equity for an equivalent all-equity financed firm. 25 Presented a structured document free of spelling and grammatical errors. 5 Properly cited sources using APA format. 5 Scenario: Company ABC wants to invest in a Swedish manufacturing company that has an optimal debt ratio of 60%. Company ABC's cost of equity capital is 16% and its before-tax borrowing rate is 12.3%. As the CFO of ABC, you have to justify the profitability of this investment. Your Task: Given a marginal tax rate of 45%, calculate: The weighted average cost of capital (WACC) The cost of equity for an equivalent all-equity financed firm
