A firm has debt of $7.000, equity of $12,000, a leveraged value of $8,900, a cost of debt of 7%, a cost of equity of 18%, and a tax rate of 30%. What is the firm's weighted average cost of capital?

~ Total value of both capital:

= Value of debt + Value of equity

= $7,000 + $12,000

= $19,000

~ Weight of debt = Debt / Total capital =  $7,000 / $19,000 = 0.3684

~ Weight of equity = Equity / Total capital = $12,000 / $19,000 = 0.6316

~ Firm's weighted average cost of capital :

= (Weight of debt)(Cost of debt)(1 - tax rate) + (Weight of equity)(Cost of equity)

= (0.3684)(7%)(1-0.30) + (0.6316)(18%)

= 2.58% + 11.37%

= 13.95%

Answer: Firm's weighted average cost of capital = 13.95%