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2. (3 points) Which of the following is a mistake to avoid when estimating the cost of cani cost of capital? a. Remembering that capital

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2. (3 points) Which of the following is a mistake to avoid when estimating the cost of cani cost of capital? a. Remembering that capital components are funds that come from investors b. Basing the cost of existing debt on the YTM instead of the historical cost. c. Using the target capital structure to obtain the weights when estimating the WACC not the book value weights. d. Using the expected return on the stock market in conjunction with the historical return on the T-bond when estimating the market risk premium. Part IV: Problems (36 points) 1. (10 points) Orca Bay Chemical stock has a beta of 1.30. The company retains 65% of their net income and analysts have estimated a growth rate of dividends of 4%. The current dividend is $3.00 per share and the company's stock is selling at $37.50. The company also recently issued 30 year maturity bonds at a discounted price of $960 but did not receive the full $960 as they paid 3.50% flotation costs. The bond's face value is $1000. The bonds pay a semi-annual coupon and the annual rate is 8%. The company's target capital structure is 40% debt and 60% equity, and the tax rate is 40%. What is the company's WACC? The company is also considering a project with an IRR of 15%. Should it be accepted

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