Jensen Motorsports has a new project that will require the company to borrow $3,

Question

Jensen Motorsports has a new project that will require the company to borrow $3,000,000. Jensen’s has made an agreement with three lenders for the needed financing. Citizens’ Bank will give $1,500,000 and wants 10% interest on the loan. Visitors Bank will give $1,000,000 and wants 12% interest on the loan. Peoples Bank will give $500,000 and wants 13% interest on the loan. What is the weighted average cost of capital for this $3,000,000?

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Explanation / Answer

WACC = 1500000/3000000 * 10% + 1000000/3000000 * 12% + 500000/3000000 * 13% = 11.17%

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