A Firm Is Considering Using Its Own Funds to Finance

Multiple Choice

A firm is considering using its own funds to finance an investment, but needs an estimate of the discount rate. Currently the firm is earning 4 percent on funds held in a bank account and 6 percent on funds held in stocks. If the firm has 20 percent of its funds in the bank account and the remaining 80 percent in stocks, what is the firm's weighted average cost of capital?

A) 5.6 percent
B) 5.8 percent
C) 4.4 percent
D) 4.2 percent