Springfield Corporation, whose tax rate is 34%, has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 9%, and equity capital with a market value of $16,000,000 and a cost of equity of 14%. What is Springfield's weighted average cost of capital (WACC)?
A) 14.00%
B) 9.97%
C) 11.80%
D) 12.64%

Question

Quizplus · Accepted Answer

Weighted average cost of capital (WACC) = [($6,000,000 × (1 - 0.34) × (0.09)) + ($16,000,000 × 0.14)] / ($6,000,000 + $16,000,000) = 11.80%

Springfield Corporation, Whose Tax Rate Is 34%, Has Two Sources