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Unformatted text preview: of debt by the tax shield (1-t) in the WACC formula to determine the after tax cost of debt. * The Cost of Equity Use the BUILD-UP METHOD: Treasury Bond Rate = 5.25% +Equity Risk Premium = 7.50% +Micro-Cap Premium = 3.75% +Liquidity (i.e. Start-Up) Premium = 3.50% Cost of Equity = 20% * Calculate the WACC WACC = [(weight D )* k D *(1-T)] + (weight E )* k E = [(0.35)*14%*(1-0.4)] + (0.65)*20% = 2.94% + 13% = 15.94%...
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- Summer '11
- Liquidity, Risk premium, equity risk premium