Solve for the weighted average cost of capital (WACC) for Lightning Complex Corp (LC). LC has...

Solve for the weighted average cost of capital (WACC) for Lightning Complex Corp (LC). LC has a beta of 2 and a debt-to-equity ratio 3. The risk-free rate is 3% and the market risk premium 8%. LC pays a 8% interest rate on its debt.

	A.	Not enough information
	B.	10.75%
	C.	16.25%
	D.	11.55%
	E.	8.35%

Expert Solution

Expected rate on equity=risk free rate+Beta*market risk premium

=3+(2*8)

=19%

Debt to equity ratio=debt/equity

Hence debt=3*equity

Let equity be $x

Debt=$3x

Total=$4x

WACC=Respective cost*Respective weight

=(x/4x*19)+(3x/4x*8)

=10.75%

jeff jeffy answered 2 years ago

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