The expected returns on the debt and equity of a levered firm are rE=1
The expected returns on the debt and equity of a levered firm are rE=15% and rD=7%, and the current market value of the debt and equity are E=66 and D=44, respectively. What is the firm’s weighted average cost of capital (WACC)?
a. 7.8%
b. 9.8%
c. 11.8%
d. 13.8%
FORMULA: WACC=rD(D/V)+rLE(E/V)
ANSWER
C
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