What is the calculated Weighted Average Cost of Capital (WACC) for Petunia Corporation using a 5% cost of debt and 7% cost of equity?

The Weighted Average Cost of Capital (WACC) is an essential metric for understanding a company's cost of capital from various financing sources, including equity and debt. To calculate the WACC, one must consider the proportion of debt and equity financing, as well as their respective costs, specifically the after-tax cost of debt if applicable.

In the given scenario, you have a cost of debt of 5% and a cost of equity of 7%. The WACC formula is:

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

Where:

• E is the market value of equity

• D is the market value of debt

• V is the total market value of the company's financing (E + D)

• Re is the cost of equity

• Rd is the cost of debt

• T is the corporate tax rate (if applicable)

Assuming no corporate tax for simplification, if equity and debt are equal in proportions, you would calculate the WACC as follows:

WACC = (0.5 * 7%) + (0.5 * 5%)

= 3.5% + 2.5%

= 6.0%

However, if