Question
As the CFO of Finance Rocks (FR) Inc., you are considering building a book factory. You determine that you will use a D/E ratio of
As the CFO of Finance Rocks (FR) Inc., you are considering building a book factory. You determine that you will use a D/E ratio of 2 and that after-tax cost of debt is 5%. To get the cost of equity for the factory you plan to use information from a comparable firm, Accounting Not So Much (ANSM) Inc. The beta on ANSMs stock is 1.2 and its D/E is 1. If the T-bond rate is 6% and the market risk premium is 5.5%. The tax rate for FR and ANSM is 40%.
- What is the cost of equity for the project?
- What is the projects WACC?
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M Finance
Authors: Marcia Cornett, Troy Adair, John Nofsinger
3rd Edition
0077861779, 978-0077861773
