What is Rockler's Weighted Average Cost of Capital, given their financial details?

To understand why the Weighted Average Cost of Capital (WACC) for Rockler is determined to be 7.18%, it is important to recognize how WACC is calculated. WACC is the average rate of return a company is expected to pay to its security holders to finance its assets, and it takes into account the cost of equity and the cost of debt, weighted by their respective proportions in the company’s capital structure.

In this scenario, the calculation would typically involve gathering specific financial data, such as the market value of equity and debt, the cost of equity derived from the Capital Asset Pricing Model (CAPM) or another method, and the after-tax cost of debt. The formula for WACC is as follows:

WACC = (E/V * Re) + (D/V * Rd * (1-Tc))

Where:

• E = market value of equity

• D = market value of debt

• V = E + D (total market value of the firm)

• Re = cost of equity

• Rd = cost of debt

• Tc = corporate tax rate

The resulting percentage reflects the synthesizing of these costs, giving a comprehensive view of the cost of financing for the company. The specific parameters chosen and the