Answer to Question #297190 in Finance for moha

Question

As a finance manager of Kersot Enterprise Limited, where the Board of Trustees is reviewing the mix of the capital structure of the enterprise based on target value and has decided to raise 40 percent of new funds from long-term debt, 10 percent from preferred shares, and 50 percent from ordinary shares with components of 5.6, 10.5 and 15.7 respectively.

Estimate percentage of this BEST MIX for the enterprise and support the decision taken.        

Answer 1

$WACC=0.4\times5.6+0.1\times10.5+0.5\times15.7=11.14$