16. The market value of $A B C^{'}$ s bonds is $$ 10$ million while the market value of its common stock is $$ 20$ million, resulting in a debt/equity ratio of 0.33 . The cost of common stock equity is estimated to be $17 %$ using the DGM and $19 %$ using the CAPM. The bond coupon rate and YTM are both $11 %$ per year. The income tax rate is $40 %$ . Assuming that only debt and common equity financing exist, what is the firm's weighted-average cost of capital? (Use several decimals to reduce any rounding error.)
a. $15.5 %$
b. $12.9 %$
c. $14.2 %$
d.15.7\%
e. None of the other statements is true.

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$W A C C = 14.2 %$

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Step 1 ：Calculate the total value of the firm (V) by adding the market value of debt (D) and equity (E): $V = D + E = 10, 000, 000 + 20, 000, 000 = 30, 000, 000$

Step 2 ：Calculate the average cost of equity (Re) using the DGM and CAPM estimates: $R e = \frac{D G M + C A P M}{2} = \frac{0.17 + 0.19}{2} = 0.18$

Step 3 ：Calculate the weighted-average cost of capital (WACC) using the formula: $W A C C = \frac{E}{V} \times R e + \frac{D}{V} \times R d \times (1 - T c)$

Step 4 ：Plug in the values and calculate WACC: $W A C C = \frac{20, 000, 000}{30, 000, 000} \times 0.18 + \frac{10, 000, 000}{30, 000, 000} \times 0.11 \times (1 - 0.4) = 0.142$

Step 5 ： $W A C C = 14.2 %$

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