The Black Bird Company plans an expansion. The expansion is to be financed by se

Question

The Black Bird Company plans an expansion. The expansion is to be financed by selling $92 million in new debt and $127 million in new common stock. The before-tax required rate of return on debt is 7.51% percent and the required rate of return on equity is 13.74% percent. If the company is in the 34 percent tax bracket, what is the weighted average cost of capital? Round the answer to two decimal places in percentage form. (Write the percentage sign in the "units"box) Your Answer Answer units Save Page 2 of 3 Next Page Save All Responses Go to Submit Quiz

Explanation / Answer

Total =(92+127)=$219million

After tax cost of debt=7.51(1-0.34)=4.9566%

WACC=Respective costs*Respective weights

=(92/219*4.9566)+(127/219*13.74)

which is equal to

=10.05%(Approx).

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