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 investment. 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 formula

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

Solve the following Economics problem 

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 investment. 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 formula
Transcribed Image Text: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 investment. 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 formula
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education