1.Whispering Pines Inc. is all-equity financed. The expected rate of return on the company's shares is 12%....
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Question:
1.Whispering Pines Inc. is all-equity financed. The expected rate of return on the company's shares is 12%.
a. What is the opportunity cost of capital for an average-risk investment project?
b. Suppose the company issues debt, repurchases shares, and moves to a 30% debt-to-value ratio (D/V = 0.3). What will be the company's weighted average cost of capital at the new capital structure? The borrowing rate is 7.5% and the tax rate is 21%.
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