Gonzales, Inc. financed a new product as follows: $5 million in stock sales at 13.7% per year, $2 million in retained earnings at 8.9% per year, and $3 million through convertible bonds at 7.8% per year. The company’s WACC is closest to: (choose one)
(a) 9% per year
(b) 10% per year
(c) 11% per year
(d) 12% per year
WACC = (5/10)(13.7%) + (2/10)(8.9%) + (3/10)(7.8%)
= 10.97%
Answer is (c) 11% per year
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