The M&M Company is financed by $4 million (market value)in debt and $6 million (market value)in equity. The cost of debt is 5 percent and the cost of equity is 10 percent. Calculate the weighted average cost of capital. (Assume no taxes.)

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is calculated as [(Debt/Total Capital) * Cost of Debt] + [(Equity/Total Capital) * Cost of Equity]. Here, it's [(4/10) * 5%] + [(6/10) * 10%] = 2% + 6% = 8%.

The M&M Company Is Financed by $4 Million (Market Value)in