WACC Have Solution Need to Understand Process

[alohashley]

The Marvel Magnet Company has the following target capital structure, which is considered to be optimal, and which it seeks to maintain. Assume there is no short-term debt.

Long Term Debt $ 12 million
Common Equity 28 million
Total 40 million

Suppose the company's can issue new debt at 8%. The corporate tax rate is 25%, and its cost of equity is 12%. Find the company's weighted average cost of capital. (WACC).

The solution is 10.2%

This is what I did but I could not get the correct answer CAN YOU HELP WITH SHOWING ME WHERE I WENT WRONG PLEASE?

( 28/40 x .12) + (12/40 x .08) x ( 1- .25) = 8.1% (wrong answer)

Thank you!

 

[Denis]

( 28/40 x .12) + (12/40 x .08) x ( 1- .25) = 8.1% (wrong answer)

That equals .102 or 10.2%
Don't know how you managed to get 8.1 out of that!
28/40 * .12 = .084
12/40 * .08 * .75 = .018
.084 + .018 = .102