Answer:
WACC = 10.868%
Explanation:
The following data table will show the easiest way to calculate weighted average cost of capital.
Capital components Investment ($) Weight
Debt Capital (Wd) 230,000 230,000 ÷ 570,000 = 0.40
Equity Capital (We) 320,000 320,000 ÷ 570,000 = 0.56
Preference capital (Wp) 20,000 20,000 ÷ 570,000 = 0.04
Total Investment $570,000 1.00
We know,
WACC = [Wd × Kd (1 - T)] + [Wp × kp] + [We × ke]
Given,
Kd (1 - T) = 9.6% × (1 - 0.25) = 7.2%
kp = 10.7%
ke = 13.5%
WACC = [0.40 × 7.2%] + [0.04 × 10.7%] + [0.56 × 13.5%]
or, WACC = 2.88% + 0.428% + 7.56%
Therefore, WACC = 10.868%
