Michigan Manufacturing Inc. (MM) has a new project that will require t

Michigan Manufacturing Inc. (MM) has a new project that will require the company to borrow $1,000,000. MM has made an agreement with three lenders for the needed financing.

First National Bank will give $500,000 and wants 9% interest on the loan. Key West Bank will give $300,000 and wants 11% interest on the loan. Chase Bank will give $200,000 and wants 12% interest on the loan. What is the weighted average cost of capital for this $1,000,000?
A) 10.67%
B) 10.20%
C) 10.00%
D) 9.67%

ANSWER

Answer: B
Explanation: B) WACC = × 9% + × 11% + × 12% = 10.20%.