Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.0 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year semiannual maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. The firm is financed with $120,000,000 of common shares (market value) and $80,000,000 of debt. What is the after-tax weighted average cost of capital for Droz's, if it is subject to a 35 percent marginal tax rate?
a) 10.20%
b) 11.88%
c) 11.52%
d) 13.32%

The weighted average cost of capital (WACC), which includes common stock, preferred stock, bonds, and other types of debt, is the average after-tax cost of capital for a company. The WACC is the typical interest rate that a business anticipates paying to finance its assets.

The Weighted Average Cost of Capital (WACC) of a company is a measure of its total cost of capital, which includes debt, common shares, and preferred shares. Each sort of capital's cost is multiplied by how much of the total capital it makes up.

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