What is the weighted average cost of capital

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Wright company is considering an investment in new manufacturing equipment. The equipment costs $220,000 and will provide annual aftertax inflows of $50,000 at the end of the next 7 years. The firm's market value debt/equity ratio is 25%, its cost of equity is 14%, and its pretax cost of debt is 7%. The firm's combined marginal federal and state tax rate is 40%. Assume the project is of approximately the same risk as the firm's existing operations. What is the weighted average cost of capital?

Reference no: EM131730544

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