So i have this question:
Assume the following data for U&P Company: Debt (D) = $100 million; Equity (E) =$300 million; rD = 6%; rE = 12%; and TC = 30%. Calculate the after-tax weighted average cost of capital (WACC):
I know that the formula is indeed
After tax WACC=(1-TC)rD(D/V) + rE(E/V).
If i correctly replace all the numbers i get that the after tax wacc is 6%. For example, in order to get D/V i do 100/130 since V=E+D=130.
However on the answer sheet it states that :
After tax WACC= (1/4)(1 - 0.3)(6) + (3/4)(12) = 10.05%.
I do not understand this answer; where is the (1/4) and the (3/4) coming from ? Shouldn't D/V=100/130 and E/V=30/130?
Thanks for the help!