Determine the weighted cost of capital for the Mills Company that will finance its optimal capital budget with $120 million of long-term debt (kd = 12.5%) and $180 million in retained earnings (k? = 16.0%). Mills' present capital structure is considered optimal. The company's marginal tax rate is 40%. (Compute answer to nearest .1%).

Question

Quizplus · Accepted Answer

Solution: k_a = 0.40 * 12.5%(1 - 0.4) + 0.60 * 16.0% = 12.6%

Determine the Weighted Cost of Capital for the Mills Company