WACC. Grey's Pharmaceuticals has a new project that will require funding of $1.3 million. The company...

WACC. Grey's Pharmaceuticals has a new project that will require funding of $1.3 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 $471,035- 16% Yang $394,713 -13% Shepherd $310,768 -11% Bailey $123,484 -12%

What is the weighted average cost of capital for the $1,300,000?

Expert Solution

Step 1:We would first calculate the total interest expenditure on these 4 debts:

Lender name	Amount	Interest rate	Interest amount

Steven	4,71,035	16%	75,366
Yang	3,94,713	13%	51,313
Shepherd	3,10,768	11%	34,184
Bailey	1,23,484	12%	14,818
Total	13,00,000		1,75,681

Step 2: Calculation of weighted average cost of capital:

Total interest amount/Total loan amount

=175,681/13,00,000

=13.51%

Hence, the weighted average cost of capital is 13.51%

jeff jeffy answered 1 year ago

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