Case Study 15 -What Is the Weighted Average Cost of Capital Based on Requiring

Multiple Choice

Case Study 15.2
A distributing company has financed an expansion requiring $50 million as shown in table below even though historically the company has financed any capital requirement with 20% debt at 12% interest and 80% equity with a 8% rate of return.
$$\begin{array} { | l | l | l | } \hline \text { Source of capital } & \text { Amuunt } & \text { Interest Rate/ Dividend } \\\hline \text { Stocks } & \$ 16 \mathrm { M } & 8 \% \\\hline \text { Retaired eariirgs } & \$ 25 \mathrm { M } & 10 \% \\\hline \text { Bonds } & \$ 9 \mathrm { M } & 6 \% \\\hline\end{array}$$
-What is the weighted average cost of capital based on historical method?

A) 5.8%
B) 7.9%
C) 8.2%
D) 8.80%