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Discuss the importance of the cost of capital in financial

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Reference no: EM132899859

A firm has the following capital structure and after tax costs for the different sources of funds used:

                      Sources of Funds Amount (€)           After-tax Cost %

Debt                              40,00,000                       4.50%

Preference Shares            20,00,000                       9.00%

Equity Shares                 60,00,000                      11.00%

Retained earnings            80,00,000                         10.00%

Total                             200,000,000

Problem a) Calculate the weighted average cost of capital (WACC -show your calculations).

Problem b) Discuss the importance of the cost of capital in financial decision making.

Reference no: EM132899859

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