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WACC. ​Grey's Pharmaceuticals has a new project that will require funding of ​$5.4 million. The company...

WACC. ​Grey's Pharmaceuticals has a new project that will require funding of ​$5.4 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 $2,029,278 12% , Yang $1,597,982 11% , Shepherd $1,192,408 8% , Bailey $580,332 9% . What is the weighted average cost of capital for the ​$5,400,000​?

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Expert Solution

Total Loan portfolio value = Value of loan from Steven + Value of loan from Yang + Value of loan from Shephard + Value of loan from Bailey
=2029278+1597982+1192408+580332
=5400000
Weight of loan from Steven = Value of loan from Steven/Total Loan portfolio Value
= 2029278/5400000
=0.3758
Weight of loan from Yang = Value of loan from Yang/Total Loan portfolio Value
= 1597982/5400000
=0.2959
Weight of loan from Shephard = Value of loan from Shephard/Total Loan portfolio Value
= 1192408/5400000
=0.2208
Weight of loan from Bailey = Value of loan from Bailey/Total Loan portfolio Value
= 580332/5400000
=0.1075
Cost of capital of Loan portfolio = Weight of loan from Steven*Cost of capital of loan from Steven+Weight of loan from Yang*Cost of capital of loan from Yang+Weight of loan from Shephard*Cost of capital of loan from Shephard+Weight of loan from Bailey*Cost of capital of loan from Bailey
Cost of capital of Loan portfolio = 12*0.3758+11*0.2959+8*0.2208+9*0.1075
Cost of capital of Loan portfolio = 10.4984

jeff jeffy answered 1 year ago
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