In order to finance a new project costing $30 million, a company borrowed $21 million at 16% per year interest and used retained earnings valued at 12% per year for the remainder of the financing. The company’s weighted average cost of capital for the project was closest to: (a) 12.5% (b) 13.6% (c) 14.8% (d ) 15.6%
In order to finance a new project costing $30 million, a company borrowed $21 million at 16% per year interest and used retained earnings valued at 12% per year for the remainder of the financing. The company’s weighted average cost of capital for the project was closest to: (a) 12.5% (b) 13.6% (c) 14.8% (d ) 15.6%
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 34P
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Question
In order to finance a new project costing $30 million,
a company borrowed $21 million at 16% per year
interest and used
per year for the remainder of the financing. The
company’s weighted average cost of capital for the
project was closest to:
(a) 12.5%
(b) 13.6%
(c) 14.8%
(d ) 15.6%
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