Problem:
The ABC Co is in the process of determining a return rate to use or its cost of capital. Upon review of the financial statements it was determined that the total interest bearing debt is $1,400,000 and total stockholders' equity is $1,000,000. In addition, it was determined that the cost of debt financing is 8%, and thre cost of equity financing is 18%.
Q1. What proportion of the ABC co's total financing comes from debt? (Show calculations please)
Q2. What proportion of the ABC co's total financing comes from equity?
Q3. Calculate the ABC's weighted average cost of captial rate.