If D is the market value of a firm's debt, E the market value of that same firm's equity, V the total value of the firm (E+ D), Rd the yield on the first debt, Tc is the corporate tax rate, and Re the cost of equity, the weighted average cost of capital is:

If D is the market value of a firm's debt, E the market value of that same firm's equity, V the total value of the firm (E+ D), Rd the yield on the first debt, Tc is the corporate tax rate, and Re the cost of equity, the weighted average cost of capital is:




Answer: [E/D] x Re + [D/E] x Ro x (1 - Tc).


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