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A small firm has a line of credit that bears a rate of 8%. One quarter of the firm's total financing is supplied by this

  1. A small firm has a line of credit that bears a rate of 8%. One quarter of the firm's total financing is supplied by this source. In addition, the firm has common stock and retained earnings. Dividends and issuance costs for stock and opportunity costs on the retained earnings result in a 6% cost of equity on average. This equity is relied upon for 75% of the firm's financing. The firm's tax rate is 35%. What is its weighted average cost of capital (WACC)?

  1. 5.8%
  2. 4.6%
  3. 5.9%
  4. 7.1%

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