Calculating WACC

Everything Corp. has operations in many different businesses, including the manufacturing of toasters. Find the WACC appropriate for discounting the cash flows associated with an expansion in its toaster manufacturing business. $($See the handout for additional instructions.$)$

$1.$ Unlever Beta

Comparable Levered $\backslash$beta E D$/$V Unlevered $\backslash$beta A NOTES:

Franklin Toaster $0\mathrm{.}860\mathrm{.}33\backslash$beta A$=($E$/$V$)*\backslash$beta E

Ohio Toaster $1\mathrm{.}150\mathrm{.}59$

Superior Toasters $0\mathrm{.}79$

AVERAGE $\backslash$beta A

$2.$ Relever Beta

Target D$/$V $0\mathrm{.}60$

Relevered $\backslash$beta E $\backslash$beta E$=\backslash$beta A$/($E$/$V$)$

$3.$ Cost of Equity

ig $5\mathrm{.}45\%10-$year treasury rate

Rp $6\mathrm{.}90\%$ market risk premium

KE KE$=$ig$+\backslash$beta $($Rp$)$

$4.$ Cost of Debt

Bond rating estimated from comparable data

Premium premium over treasurys

KD

$5.$ WACC $($KW$)$

t $44\%$ from last year's operating results

KW KW$=($D$/$V$)$KD$(1-$t$)+($E$/$V$)$KE Q$1$: Under the assumptions given, what is the appropriate WACC for Everything$$s investment in toaster manufacturing? $\_\_\_\_\_\_\_\_\_\_$ Q$2$: Suppose that Everything determined that the appropriate target debt ratio for their toaster division would really be $0\mathrm{.}4.$ What would be the WACC? $\_\_\_\_\_\_\_\_\_\_$