Question

Grey's Pharmaceuticals has a new project that will require funding of $15.0 million. The company has decided to pursue an​ all-debt scenario. ​ Grey's has made agreements with four lenders for the needed financing. These lenders will advance the following amounts at the interest rates​ shown:

Lender	Amount		Interest Rate
Steven	​$5,438,973		16​%
Yang	​$4,458,726		14​%
Shepherd	​$3,576,388		11​%
Bailey	​$1,525,913		12​%

What is the weighted average cost of capital for the $15,000,000​?

Answer 1

Weighted Average Cost of Capital (WACC)

Weighted Average Cost of Capital (WACC) = [Weight of the amount invested in Steven x Interest Rate] + [Weight of the amount invested in Yang x Interest Rate] + [Weight of the amount invested in Stepherd x Interest Rate] +[Weight of the amount invested in Bailey x Interest Rate]

= [($54,38,973 / $150,00,000) x 16%] + [($44,58,726 / $150,00,000) x 14%] + [($35,76,388 / $150,00,000) x 11%] + [($15,25,913 / $150,00,000) x 12%]

= [0.3626 x 16%] + [0.2972 x 14%] + [0.2384 x 11%] + [0.1018 x 12%]

= 5.80% + 4.16% + 2.62% + 1.22%

= 13.80%

“Hence, the Weighted Average Cost of Capital (WACC) for the $150,00,000 is 13.80%”