What is the company cost of capital for a firm financed with 30% debt if the debt requires a 10% return and equity requires a 16% return?

Question

Quizplus · Accepted Answer

The company cost of capital can be calculated using the weighted average cost of capital (WACC) formula, where WACC = (% of debt x cost of debt) + (% of equity x cost of equity). Plugging in the given values, WACC = (0.3 x 0.10) + (0.7 x 0.16) = 0.03 + 0.112 = 0.142 or 14.2%. Therefore, the best choice is C.

What Is the Company Cost of Capital for a Firm