PrintQuik Inc. has a cost of equity of 14% and a cost of debt of 6%. I

PrintQuik Inc. has a cost of equity of 14% and a cost of debt of 6%. If the firm is financed with 70% equity and 30% debt, and they operate under the conditions of a perfect capital market, what is the firm’s average cost of capital?

A) 9.80%
B) 10.50%
C) 11.60%
D) 10.00%

ANSWER

C
Explanation: C) Ka = Wd * Kd + We * Ke = .30*6% + .70*14% = 11.60%.