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14 September, 00:10

If your firm has a capital structer of 60% debt and 40% common equity with the debt having cost of 10% and the equity of 17% what is the firm weight average cost of capital

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  1. 14 September, 01:57
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    12.8%

    Explanation:

    Data provided in the question:

    Debt = 60% = 0.60

    Equity = 40% = 0.40

    Cost of debt, kd = 10% = 0.10

    cost of equity, ke = 17% = 0.17

    Now,

    firm weight average cost of capital

    = (ke * weight of equity) + (kd * weight of debt)

    on substituting the respective values, we get

    = (0.17 * 0.40) + (0.10 * 0.60)

    = 0.068 + 0.06

    = 0.128

    or

    = 0.128 * 100%

    = 12.8%
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