Question
a. WACC Anderson Motors has a target capital structure of 30% debt and 70% common equity with no preferred stock. The yield to maturity on
a. WACC Anderson Motors has a target capital structure of 30% debt and 70% common equity with no preferred stock. The yield to maturity on the companys outstanding bonds is 9%, and its tax rate is 40%. Pearsons CFO estimates that the companys WACC is 10.50%. Whats Andersons cost of common equity?
b. Western Waters, LLC estimates that the WACC is 10.5%. The company is considering the following capital budgeting projects:
| Project | Size | Rate of Return |
| A | $1 million | 12.0% |
| B | 2 million | 11.5% |
| C | 2 million | 11.2% |
| D | 2 million | 11.0% |
| E | 1 million | 10.7% |
| F | 1 million | 10.3% |
| G | 1 million | 10.2 |
Assume that each of these projects is just as risky as the firm's existing assets. and that the firm may accept all the projects or only some of them. Which set of project should be accepted? What's the amount of total investments?
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