Sam Jones Has an Engineering Firm

question 32

Multiple Choice

Sam Jones has an engineering firm.He wants to build a new headquarters building.The building will cost $1,500,000.He will finance the entire building himself,even though bank financing is at prime plus 2 percent.The prime lending rate is currently 8.5 percent.Sam will withdraw the money for the building from his mutual fund account where he has earned 13% for the last ten years.What is Sam's weighted average cost of capital?

• A)10.5%
• B)13.00%
• C)11.25%
• D)8)5%