For a 60–40 D-E mix of investment capital, the maximum cost for debt capital that would yield a WACC of 10% when the cost of equity capital is 4% is closest to: (choose one)
(a) 8%
(b) 12%
(c) 14%
(d ) 16%
WACC = equity fraction(cost of equity) + fraction of debt(cost of debt)
0.10 = 0.60(x) + 0.40(0.04)
x = 0.14 (14%)
Answer is (c) 14%
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