Red Rider Custom Built Bikes (RRB) Inc. has a new project that will require the company to borrow $1,000,000. RRB has made an agreement with three lenders for the needed financing. Valley Bank will give $500,000 and wants 9% interest on the loan. Mountain View Bank will give $300,000 and wants 11% interest on the loan.Desert Bank will give $200,000 and wants 12% interest on the loan. What is the weighted average cost of capital for this $1,000,000?
A) 10.67%
B) 10.20%
C) 10.00%
D) 9.67%

Question

Quizplus · Accepted Answer

The weighted average cost of capital is calculated by multiplying each loan amount by its respective interest rate, summing these products, and then dividing by the total loan amount: (500,000*0.09 + 300,000*0.11 + 200,000*0.12) / 1,000,000 = 10.20%.