In order to finance a new project costing $30 million, a company borrowed $21 million at 16% per year interest and used retained earnings valued at 12% per year for the remainder of the financing. The company’s weighted average cost of capital for the project was closest to:
(a) 12.5%
(b) 13.6%
(c) 14.8%
(d ) 15.6%
WACC = 0.70(16%) + 0.30(12%)
= 14.8%
Answer is (c)
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