Question

If your firm has a capital structer of 60% debt and 40% common equity with the debt having cost of 10% and the equity of 17% what is the firm weight average cost of capital

Answer 1

12.8%

Step-by-step explanation:

Data provided in the question:

Debt = 60% = 0.60

Equity = 40% = 0.40

Cost of debt, kd = 10% = 0.10

cost of equity, ke = 17% = 0.17

Now,

firm weight average cost of capital

= ( ke × weight of equity ) + ( kd × weight of debt )

on substituting the respective values, we get

= ( 0.17 × 0.40 ) + ( 0.10 × 0.60 )

= 0.068 + 0.06

= 0.128

or

= 0.128 × 100%

= 12.8%