Snow Co
Subject:FinancePrice:2.86 Bought8
Snow Co. is a publicly traded company Istanbul. The firm provides ski supplies for the last 35 years. At the close of 2020 the firm’s capital structure was as follows:
| Bonds | 4000 |
| Common Stock | 5300 |
| Total | 9300 |
The company plans to keep its debt structure in the future. The pre-tax cost of debt is 10 percent and 12 percent is the cost of common stock. The marginal tax rate for the firm is 35 percent.
A) What is Snow Co.’s weighted average cost of capital?
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Weighted average cost of capital = Weight of debt * Cost of debt * (1-Tax rate) + Weight pf equity * Cost of equity
Weight of debt = Debt /(Debt + Equity)
= 4000/9300
= 43.01%
Weight of equity = 5300/9300
= 56.99%
Weigthed average cost of capital = 43.01% * 10% * (1-35%) + 56.99%*12%
WACC = 9.6345%
