Problem
CompuTech needs to raise $212,000 from the following four sources. Assume that the company's income tax rate is 33%. Source Amounts ($) Share capital 100,000 Long-term borrowings (mortgage) 60,000 Trade and other payables 17,000 Short-term borrowings (term loan) 35,000 The bank charges 12% (before tax) for the term loan and 11% for the mortgage. The Millers expect to earn 8% on their savings.
Task
i. Calculate the company's after-tax cost of financing.
ii. Calculate the company's weighted average cost of capital.