20.14.3. [Difficult] Suppose a bank is faced with the interest rates below for the sources of funds upon which it draws. The non-interest-bearing demand deposits have a rate of 0%, while the other sources have rates ranging from 3.0% to 6.0%. The total interest cost is $47.0 million:

Sources of Funds Drawn Upon	Avg Amount of Funds Raised (millions)	Avg Rate of Interest Incurred	Tot Interest Paid for Each (millions)
Nonint-bearing demand deposits	$100.0	0.0%	$0.0
Interest-bearing trans. deposits	$200.0	5.0%	$10.0
Savings accounts	$100.0	3.0%	$3.0
Time deposits	$500.0	6.0%	$30.0
Money market borrowings	$100.0	4.0%	$4.0
Total funds raised	$1,000.0		$47.0

Operating costs (mm) | $9.0
Earning assets (mm) | $700.0
Shareholders' Investment | $100.0

Shareholders require 12.00% while the firm's tax rate is 21.00%

Also displayed in the exhibit: The bank's operating costs (including salaries and overhead) are $9.0 million. The bank has $700.0 million in (interest) earning assets and stockholders' investment (aka, equity) is $100.0 million. Finally, we can assume that stockholders have a required after-tax return of 12.0%, while the firm's tax rate is 21.0%; therefore, stockholders' pretax required rate of return is $12.0% / (1 - 21.0%) = 15.19%$. According to the historical average cost approach, the fully-loaded LOWEST rate of return overall fund-raising costs the bank can afford to earn on its assets is given by the bank's weighted average cost of capital (WACC).

Here is a key solving hint: WACC = break-even cost on borrowed funds (%) plus (+) before-tax cost of stockholders’ investment (%); in percentage terms, the before-tax stockholder costs = shareholder’s pretax required rate of return (%) × (stockholders’ investment / earning assets). What is this bank’s WACC?