Dakota Drilling Inc.(DD)has a new project that will require the company to borrow $5,000,000.MM has made an agreement with three lenders for the needed financing.First National Bank will give $1,000,000 and wants 6% interest on the loan.Texas Bank will give $3,000,000 and wants 7% interest on the loan.Chase Bank will give $1,000,000 and wants 8% interest on the loan.What is the weighted average cost of capital for this $5,000,000?
A)10.67%
B)10.20%
C)8.00.00%
D)7.00%

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is calculated by taking the sum of the products of each loan's proportion of the total loan and its interest rate. For this case: (1,000,000/5,000,000)*6% + (3,000,000/5,000,000)*7% + (1,000,000/5,000,000)*8% = 7.00%.