Question on weighted average cost of capital

Business & Finance
Tutor: None Selected Time limit: 1 Day

The Black Bird Company plans an expansion. The expansion is to be financed by selling $52 million in new debt and $123 million in new common stock. The before-tax required rate of return on debt is 8.84% percent and the required rate of return on equity is 19.90% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital?

Round the answer to two decimal places in percentage form. 

Sep 28th, 2015

Thank you for the opportunity to help you with your question!

Total capital needed for expansion= 52+123 million$= $175M

before tax cost of debt= 8.84% after tax cost= 8.84*.66= 5.83%

WACC=( 52*5.83%+123*19.90%)/175 = 15.72%

Please let me know if you need any clarification. I'm always happy to answer your questions.
Sep 28th, 2015

Thank you so much! 

Sep 28th, 2015

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