P918 Weighted average cost of capital (WACC) John Dough has just been awarded his degree in business. He has three education loans outstanding. They all mature in 5 years, and he can repay them without penalty any time before maturity. The amounts owed on each loan and the annual interest rate associated with each loan are given in the following table:

John can also combine the total of his three debts (i.e., $64,000) and create a consolidated loan from his bank. His bank will charge a 7.2% annual interest rate for a period of 5 years. Should John do nothing (leave the three individual loans as is) or create a consolidated loan (the $64,000 question).

Annual Loan Balance due interest rate $20,000 12,000 32,000 5% 5