MTNL Inc

Finance Jan 13, 2021

MTNL Inc. is investing in a major capital budgeting project that will require the expenditure of $16 million. The money will be raised by issuing $2 million of bonds, $4 million of preferred stock, and $10 million of new common stock. The company estimates is after-tax cost of debt to be 7%, its cost of preferred stock to be 9%, the cost of retained earnings to be 14%, and the cost of new common stock to be 17%. What is the weighted average cost of capital for this project? 15.56% 13.75% 11.12% 16.54%

Expert Solution

We see that the weighted average cost of capital for the project is given as=(2*7%+4*9%+10*17%)/16
=13.7500%

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