A firm has Kd (after tax) 6%, Kp 10%, Ke 15%. Weights: 40% debt, 10% pref, 50% equity. WACC equals:
A9.5%
B12.4%
C11.5%
D10.9%
Answer & Solution
Correct answer: D. 10.9%
1. WACC = 0.40 × 6% + 0.10 × 10% + 0.50 × 15%.
2. = 2.4% + 1.0% + 7.5%.
3. Result = 10.9%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §10_