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Anna35 [415]
3 years ago
6

If the managers of HHH Enterprises were to commit to an investment project under consideration, they would obtain 40% of the mon

ey to buy the needed assets from lenders (wd) and 60% from owners (we). Lenders would be expected to charge an 8% annual interest rate (kd), and owners would expect a 12% annual rate of return on equity (ke). If the project were undertaken, the company’s marginal yearly income tax rate t would be 30%. What would we compute the annual weighted average cost of capital (WACC) for the project to be? A. 8.24% B. 11.60% C. 7.28% D. 9.44% E. 10.40%
Business
1 answer:
Mamont248 [21]3 years ago
6 0

Answer:

D. 9.44%

Explanation:

The computation of the weighted average cost of capital is shown below:

Weighted average cost of capital is

= Cost of debt × (1 - tax rate) × weight of debt + cost of equity × weight of equity

= 8% × (1 - 0.30) × 40% + 12% × 60%

= 2.24% + 7.2%

= 9.44%

Hence, the weighted average cost of capital is 9.44%

Therefore the right option is D.

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