The following is the capital structure of a firm:
Source of capital
Amount
Weights
Equity capital
450,000
Retained earnings [reserves]
150,000
Pref. share capital
100,000
Debt
300,000
1,000,000
The firm’s expected after-tax component cost of the various sources of finance are as follows;
Source of capital
Amount
Equity capital
18%
Retained earnings [reserves]
18%
Pref. share capital
11%
Debt
8%
Compute the WACC of the firm.
Question 2Answer
a.
15.4%
b.
14.3%
c.
11.25%
d.
12.5%
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