Assume that Zonk is a potential leveraged buyout candidate. Assume that the buyer intends to put in place a capital structure that has 70 percent debt with a pre tax borrowing cost of 14 percent and 30 percent common equity. Compute the weighted average cost of capital for Zonk based on the new capital structure
a. 8.85%
b. 12.56%
c. 13.01%
d. 9.94%
A
New WACC = [.70*.14*(1-.35)]+(.30*.0828)=8.85%
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