Combinations of debtequity financing mean that a weighted av

Combinations of debt-equity financing mean that a weighted average cost of capital (WACC) percentage rate (%) results. What is the WACC % for a purchase made with 1/3^rd  of the total purchase made with a credit card (debt financing) at i=24% per year and 2/3^rds of the total purchase made with savings account funds (equity financing) earning i=4% per year?

Solution

Answer:

WACC = % purchase through debt* cost of debt + % purchase through equity*cost of equity

WACC = (1/3)*24% + (2/3)*4%

WACC = (1/3)*24% + (2/3)*4% = 10.67% approx.