Assume that the after-tax cost of debt is 7% and the cost of equity is 12%. Determine the weighted- average cost of capital to DQZ.

The 7% debt cost and the 12% equity cost should be weighted by the proportions of the total

investment represented by each source of capital. The total project costs $50 million, of which debt is

$15 million, or 30% of the total. Equity capital is the other 70%,. Consequently, the weighted-average

cost of capital is 10.5% [(7%)(30%) + (12%)(70%)].