Question

you are going to build a factory and take out a $100,000 loan at 15% interest and issue $50,000 worth of which you have to pay 10% interest. What is the WACC?

Answer 1

Debt	100,000	0.67	Debt/equity
Equity	50,000	0.33	Equity /Debt
Total	150,000
Return on debt = (100,000*15%) = 15,000
Return on equity = (50,000*10%) = 5,000
WACC = (Return on debt * (Debt / (Debt+Equity) + (Return on equity * (Equity / (Debt + Equity)
=	(15% * (100,000/ (150,000) + (10% * (50,000 / (150,000)
=	(15%*0.67) + (10%*0.33) = 13.33%