Question
calculate the WACC for a new project and you have decided to use the pure play method. You determine the capital structure is 75% equity
calculate the WACC for a new project and you have decided to use the pure play method. You determine the capital structure is 75% equity and 25% debt (i.e., E/(D+E) = 0.75).To get the cost of debt for the project you plan to use an annual bond with the following characteristics: Price is $1,000, Coupon rate is 5%, face value is $1,000 and it has 10 years to maturity. To get the cost of equity for the factory you plan to use the "pure-play" method and information from the following comparable firm: The comparable firm's Beta (BL) is 1.5; its tax rate is 20%, and its D/E is 1.00.The T-bond rate is 1.00%, the market risk premium (MRP) is 5%, and the tax rate for your company is 25%
What is the beta you would use in the CAPM to get the cost of equity for the project? Round your answer to two decimal places
What is the pre-tax cost of debt?Put your answer in decimal form (not percent) and round to four decimal places (e.g., 0.0123)
What is the WACC?Put your answer in decimal form (not percent) and round to four decimal places (e.g., 0.0123)
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