A company’s capital structure is made up of 40% debt and 60% common eq

A company’s capital structure is made up of 40% debt and 60% common equity (both at market values). The interest rate on bonds similar to those issued by the company is 8%. The cost of equity is estimated to be 15%. The income tax rate is 40%.

The company’s weighted cost of capital is A) 11.5%.
B) 12.2%.
C) 10.9%.
D) 8.9%.

ANSWER

C