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zhannawk [14.2K]
3 years ago
11

What is the weighted average cost of capital for a corporation that finances an expansion project using 35% retained earnings an

d the rest as debt capital
Business
1 answer:
Sindrei [870]3 years ago
4 0

Answer:

11.75%

Explanation:

In order to calculate the weighted average cost of capital (wacc), we can use the following formula:

wacc = (weight of debt x cost of debt after tax) + (weight of equity x cost of equity)

In this question, since the information about cost of debt and cost of equity are missing, let us assume the cost of debt = 10%, and cost of equity = 15%. The calculated wacc will be equal to:

wacc = [ (1-0.35) x 0.1 ] + [ 0.35 x 0.15 ]

          = 11.75%

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Answer:

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Asset (old)                                                                       28,000

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Transaction                                           Debit ($)                 Credit ($)

Asset(new)                                            16,000  

Accumulated depreciation (old)          10,000

Loss                                                                                      2500

Assets (old)                                                                           28,000                                  

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