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Weighted Average Cost of Capital

Please give all calculations and show the work so I can learn how it's done.

The ABC Co is in the process of determining a return rate to use or its cost of capital. Upon review of the financial statements it was determined that the total interest bearing debt is $1,400,000 and total stockholders' equity is $1,000,000. In addition, it was determined that the cost of debt financing is 8%, and thre cost of equity financing is
18%.

a. What proportion of the ABC co's total financing comes from debt? (Show calculations please)
b. What proportion of the ABC co's total financing comes from equity?
c.Calculate the ABC's weighted average cost of captial rate.

Please show all calculations. Thanks

Solution Preview

a. What proportion of the ABC co's total financing comes from debt? (Show calculations please)

The proportion is calculated as component amount/total capital. For debt the component amount of debt is 1,400,000 and the total capital ...

Solution Summary

The solution explains how to calculate the proportions of the capital components and use these to determine the weighted average cost of capital

$2.19