Question

Pecking order hypothesis.  Rachel can raise capital from the sources in the popup​ window:  LOADING.... What is​ Rachel's weighted average cost of capital if she needs to raise a.  ​$10,000​? b.  ​$25, 000​? c.  ​$35,000​?a.  What is​ Rachel's weighted average cost of capital if she needs to raise ​$10,000​?Source of Funds Parents Friends Bank loan Credit cardInterest Rate 0% 5.5% 11.5% 15.5%Borrowing Limit $11,000 $2,000 16,000 $6,000

Answer 1

Answer:

a. 0%

b. 5.96%

c. 8.23%

Explanation:

Ease see solution for Rachel's weighted average cost of capital for each;

a. WACC = 10,000/10,000 * 0.1 = 0%

b. WACC = [11,000/25,000 * 0%] + [2,000/25,000 * 5.5%] + [12,000/25,000 * 11.5%]

= 0%+0.44%+5.52%

= 5.96%

c. WACC =[11,000/35,000 * 0%] + [2,000/35,000 * 5.5%] + [16,000/35,000 * 11.5%] + [6,000/35,000 * 15.5%]

= 0%+0.3140%+5.2571%+2.6571%

= 8.23%