Question
A certain corporation is trying to estimate its WACC. The current price of its $1,000 par-value bonds carrying an 8% annual coupon rate with 10
A certain corporation is trying to estimate its WACC. The current price of its $1,000 par-value bonds carrying an 8% annual coupon rate with 10 years remaining to maturity is $875. The beta of the firm's stock is estimated at 2.2, the current risk-free rate is 5% and the firm usually takes the market risk premium to be 7%. Its target capital structure is 40% debt and 60% common equity. The firm is in the 40 percent tax bracket. Compute the firms WACC. (20 points) (B) If the project will generate cash flow of $100,000 a year for 8 years what is the most BCCI should be willing to pay to initiate the project? (10 Points)
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