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This should help with my question #1 BCs has found that its cost of equity capital is 8%, and its cost of debt capital is
This should help with my question
#1
BCs has found that its cost of equity capital is 8%, and its cost of debt capital is 12%. The firm has $250,000 of equity and $750,000 of debt. What is the weighted average cost of capital?
Step 1
Assets = Liabilities + Equity
$_1000000_________ = $_750000_________ + $_250000_________
Step 2
Xdebt = $_750000 / $_1000000 = .75___
Xequity = $_250000 / $1000000 = ._25__
Step 3
Kfirm = (.75___)(_12__%) + (.25__)(_8__%)
= ._9___ + .__2__
= .__11__
= _11___%
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