A firm has determined its cost of each source of capital and optimal capital structure,which is composed of the following sources and target market value proportions: The weighted average cost of capital is ________.

Question

A firm has determined its cost of each source of capital and optimal capital structure,which is composed of the following sources and target market value proportions:  The weighted average cost of capital is ________.

Quizplus · Accepted Answer

The weighted average cost of capital is calculated by multiplying each source of capital by its respective cost and then summing them up. Using the given target market value proportions and costs of each source, the weighted average cost of capital is:
(0.4 x 0.06) + (0.3 x 0.1) + (0.3 x 0.15) = 0.024 + 0.03 + 0.045 = 0.099 or 9.9%
Therefore, the correct answer is C, 11%.

A Firm Has Determined Its Cost of Each Source of Capital