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As part of your firm's plan to expand production capacity by 25%, you must estimate the firm's WACC. Your firm has atarget leverage ratio ofD/(D+E)=30%(with
As part of your firm's plan to expand production capacity by 25%, you must estimate the firm's WACC. Your firm has atarget leverage ratio ofD/(D+E)=30%(with D=net debt and E=market capitalization) for which its cost of debt is 3.6%. Using data from the last two years' stockreturns, yourassistant has estimated that the firm'sequity betais 1.3. The firm's tax rate is 40%. Assuming a risk-free rate of 3% and a market-risk premium of 6%, what is the firm's WACC? Is it appropriate to use this WACC to value the expansion plan
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