Question: This should help with my question #1 BCs has found that its cost of equity capital is 8%, and its cost of debt capital is

This should help with my question

BCs has found that its cost of equity capital is 8%, and its cost of debt capital is 12%. The firm has $250,000 of equity and $750,000 of debt. What is the weighted average cost of capital?

Step 1

Assets = Liabilities + Equity

$_1000000_________ = $_750000_________ + $_250000_________

Step 2

X_debt = $_750000 / $_1000000 = .75___

X_equity = $_250000 / $1000000 = ._25__

Step 3

K_firm = (.75___)(_12__%) + (.25__)(_8__%)

= ._9___ + .__2__

= .__11__

= _11___%

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