PrintQuik Inc.has a cost of equity of 14% and a cost of debt of 6%.If the firm is financed with 70% equity and 30% debt,and they operate under the conditions of a perfect capital market,what is the firm's average cost of capital?
A)9.80%
B)10.50%
C)11.60%
D)10.00%

Question

Quizplus · Accepted Answer

The firm's average cost of capital (WACC) is calculated as: WACC = (E/V) * Re + (D/V) * Rd, where E is equity, V is total value, Re is cost of equity, D is debt, and Rd is cost of debt. Substituting the given values: WACC = (0.7 * 14%) + (0.3 * 6%) = 9.8% + 1.8% = 11.6%.