Problem:
J & B Corp. is investing in a major capital budgeting project that will require the expenditure of $20 million. The money will be raised by issuing $5 million of bonds, $3 million of preferred stock, and $12 million of common stock. The company estimates is after-tax cost of debt to be 5%, its cost of preferred stock to be 9%, and the cost of new common stock to be 16%.
Required:
Question: What is the weighted average cost of capital for this project?
- 12.20%
- 11.90%
- 10.75%
- 10.00%