A firm has debt of $7,000,equity of $12,000,a cost of debt of 7 percent,a cost of equity of 14 percent,and a tax rate of 21 percent.What is the firm's weighted average cost of capital?
A)8.45 percent
B)9.90 percent
C)10.88 percent
D)12.50 percent
E)11.27 percent

Question

Quizplus · Accepted Answer

WACC = (7,000/19,000) x (0.07 x (1-0.21)) + (12,000/19,000) x 0.14 = 0.045 x 0.79 + 0.747 x 0.14 = 0.03555 + 0.10458 = 0.14013 or 14.01%. 
Therefore, the firm's weighted average cost of capital is 10.88% as rounded to two decimal places. The best choice is C.

A Firm Has Debt of $7,000,equity of $12,000,a Cost of Debt