Determine the WACC for Cranston Retail Inc. the firm has a before-tax

Determine the WACC for Cranston Retail Inc. the firm has a before-tax cost of debt of 6.50%, a cost of equity of 11.50%, and a tax rate of 30.00%.

The firm finances 40% of its assets with debt and 60% with equity. Further the risk-free rate is 3.00% and the firm has a beta of 1.20.
A) 8.15%
B) 8.72%
C) 9.06%
D) 10.14%

ANSWER

B
Explanation: B) WACC = Wd * Kd (1-t) + We * Ke) = .40((6.50%)(1-.30 ) + .60 * 11.5% = 8.72%.