Answer:
The company's WACC is closest to 11.8%
Explanation:
Weighted Average Cost of Capital (WACC) is the Cost to the Company arising from the sources of finance. It shows the return required by holders of permanent capital in the company.
WACC = Cost of Equity x Market Weight of Equity + After Tax Cost of Debt x Market Weight of Debt
where,
Cost of Equity = 16.0 %
Market Weight of Equity = 3,000 ÷ 5,000 = 0.60
Market Weight of Debt = 2,000 ÷ 5,000 = 0.40
After Tax Cost of Debt = interest x ( 1 - tax rate) = 8.0% x (1 - 0.30) = 5.60%
therefore,
WACC = 16.0% x 0.60 + 5.60% x 0.40 = 11.84 %
