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Title: Raceway Products has a market debt-to-equity ratio of .60, a corporate tax rate of 40%, and pays 8% ... Post by: EpiscoWhat on Nov 20, 2017 Raceway Products has a market debt-to-equity ratio of .60, a corporate tax rate of 40%, and pays 8% interest on its debt. The interest tax shield on Raceway's debt lowers its WACC by what amount?
Title: Re: Raceway Products has a market debt-to-equity ratio of .60, a corporate tax rate of 40%, and pays ... Post by: deusmaroto on Nov 20, 2017 Use the formula rwacc = rE + rD - rDτc
The last term rDτc captures the amount that the WACC is lowered because of the interest tax shield. So, rDτc = .08(.40) = .012 or 1.2% |