Question

A firm has determined its cost of each source of capital and the percentage of each source making up the​ firm's capital​ structure: ModifyingAbove and below Start 2 By 1 Matrix 1st Row 1st Column Bold Start 2 By 1 Matrix 1st Row 1st Column Capital Structure 2nd Row 1st Column Source of Capital Proportions After minus Tax Cost EndMatrix 2nd Row 1st Column Start 3 By 1 Matrix 1st Row 1st Column Long minus term debt 40 % 6 % 2nd Row 1st Column Preferred stock 10 11 3rd Row 1st Column Common stock equity 50 15 EndMatrix EndMatrix with brackets The weighted average cost of capital is​ ________.

Answer 1

The weighted average cost of capital is​ 11%

Step-by-step explanation:

Weight-age average cost of capital : Under weight age average cost of capital, the long term debt, equity, and preferred stock is multiply with its weight-age.

Mathematically,

Weight-age average cost of capital = Long term debt × weight-age + equity × weight-age + preferred stock × weight-age.

= 40% × 6% + 10% × 11% + 50% × 15%

= 2.4% + 1.1% + 7.5%

= 11%

Hence, The weighted average cost of capital is​ 11%