Question
All-Canadian, Ltd. is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt
All-Canadian, Ltd. is a multiproduct company with three divisions: Pacific Division, Plains Division, and Atlantic Division. The company has two sources of long-term capital: debt and equity. The interest rate on All-Canadians $415 million debt is 9 percent, and the companys tax rate is 30 percent. The cost of All-Canadians equity capital is 12 percent. Moreover, the market value of the companys equity is $535 million. (The book value of All-Canadians equity is $437 million, but that amount does not reflect the current value of the companys assets or the value of intangible assets.)
The following data (in millions) pertain to All-Canadians three divisions.
Division | Before-Tax Operating Income | Current Liabilities | Total Assets | |||||||||||||
Pacific | $ | 15 | $ | 6 | $ | 77 | ||||||||||
Plains | 52 | 5 | 307 | |||||||||||||
Atlantic | 45 | 9 | 490 | |||||||||||||
Required:
Compute All-Canadians weighted-average cost of capital (WACC). (Do not round intermediate calculations. Round your final answer to 2 decimal places (i.e., .1234 should be entered as 12.34).)
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