Answer:6.89%
Explanation:
If it's target debt to equity ratio is 0.45, the percentage of debt in its capital structure = D /D + E = 0.45 / (1 +0.45) = 0.31 = 31%
The percentage of equity in the capital structure = 100 - 31% = 69%
The Weighted Average Cost of Capital = [Weight of debt × cost of debt × (1 - tax rate)] [weight of equity × cost of equity]
=( 0.31 × 11.4% × 0.76) + (6.1% × 0.69)
= 2.69 + 4.21 = 6.89%
