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1. The value of the weighted average cost of capital of the firm is 8.8%.

   According to the statement

   we have to compute the weighted average cost of capital of the firm.

   And for this purpose,

   The given information is:

   debt with market value = $23 million and  

   equity with market value = $46

   Pre-tax cost debt = 5.4%

   Cost of equity = 11% and marginal tax rate is 21%

   So, The formula to find weighted average cost:

   WACC = weight in equity × cost of equity + weight in debt × cost of debt × (1-tax rate)

   Substitute the values in it then

   Here weight in equity become = 46/(23+46)

   weight in equity = 46/69

   And

   weight in debt = 23/69.

   So, put the values then

   WACC = 46/69 × 0.11 + 23/69 × 0.054 × (1 – 0.21)

   WACC = 0.67 × 0.11 +  0.34 × 0.054 × (1 – 0.21)

   WACC = 0.0737 + 0.01836 (0.79)

   WACC = 0.0737 + 0.0145

   WACC = 0.0882

   WACC = 8.8%

   So, The value of the weighted average cost of capital of the firm is 8.8%.

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