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how do you compute the wieghted average cost of capital?

A company can buy a piece of equipment that is anticipated to provide an 8% return and can be financed at 5% with debt. Later in the year, the firm turns down an opportunity to buy a new machine that would yeild a 15% return but would cost 17% to finace through common equity. Assume debt and common equity each represent 50% of the firm's capital structure. Now compute the weighted average cost of capital.

maryone Sun 07/09/08 02:08

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factor30
Sun 07/09/08
23:29

Homework alert!
Have a go, show us your working out and I'll comment on what you;ve come up with. You'll learn more by having a go than by getting someone to do it for you. Sounds patronising I know, but it's true.

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