Answer:
The company's cost of capital will be "13%".
Explanation:
The given values are:
Risk free rate
= 5
Beta
= 1.25
Market risk premium
= 8
Now,
⇒  [tex]cost \ of \ common \ stock=Risk \ free \ rate+Beta\times Market \ risk \ premium[/tex]
On substituting the estimated values, we get
⇒                   [tex]=5+(1.25\times 8)[/tex]
⇒                   [tex]=15 \ percent[/tex]
The total value will be:
= Â [tex]20 +5[/tex]
= Â $[tex]25 \ million[/tex]
As we know,
⇒  [tex]WACC=Respective \ costs\times Respective \ weights[/tex]
⇒        [tex]=(\frac{20}{25}\times15)+(\frac{5}{25}\times 5)[/tex]
⇒        [tex]=12+1[/tex]
⇒        [tex]=13 \ percent[/tex]
Note: % = percent
