1. As a valuation consultant, part of your job is to determine an appropriate required rate

of return for the Terrin Corporation. Terrin has a market capitalization of $6,000 (based

on 400 shares of stock outstanding and last year's net income of $800). Its beta is 1.4,

its debt/equity ratio is 1.25, its tax rate is 33%, its payout ratio is 75%, its inventory

turnover is 6.5, and its dividends are expected to grow by 4% per year throughout the

forseeable future. Terrin's average collection period (ACP) is 42 days and its debt is

rated BB. While none of Terrin's bonds are currently trading in the market, you do locate

information for a bond of Mitchell Company, a firm in Terrin's industry. The Mitchell

bond price is quoted in the Wall Street Journal at 93, its coupon rate is 6%, it matures in

10 years, and it is rated A.

Provide an estimate of Terrin's weighted average cost of capital (WACC).