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Weighted average cost of capital takes into account the weights of debt and equity in ghe capital structure and their corresponding cost to calculate the wacc.
Total market value of firm = market value of debt + market value of equity
925 mil = 425 mil + market value of equity
Thus, market value of equity = $500 million.
% of debt in capital = 425/925
% of equity in capital = 500/925
Wacc = %debt*(1-tax)*(cost of debt) + (%equity)*(cost of equity)
Wacc = (425/925)*(1-0.35)*(10%) + (500/925)*(17%)
Wacc = 12.1757%
Thus, option B is correct. 12.18%.
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