Answer:
b. 24.00%
Explanation:
The formula to compute WACC is shown below:
WACC = Weightage of debt × cost of debt + (Weightage of common stock) × (cost of common stock)
19.75% = (0.25 × 7%) + (0.75 × cost of equity)
19.75% = 1.75% + (0.75 × cost of equity)
18% = (0.75 × cost of equity)
So, the cost of equity would be = 24%
Weighted of debt = ($25 million ÷ $100 million) = 0.25
And, the weighted of common stock = (Common stock ÷ total firm)
= $75 million ÷ $100 million
= 0.75