What is the weighted average cost of capital for a corporati

What is the weighted average cost of capital for a corporation that finances an expansion project using 35% retained earnings and the rest as debt capital? Assume the interest rates are 11% for equity financing and 23% for debt financing. The weighted average cost of capital is 5785 0 %.

Solution

WACC = cost of equity x equity percentage + cost of debt x debt percentage

WACC = 23% x(1 - 35%) + 11% x 35% = 18.8%