Question
DQ Industries is analyzing their capital budgeting options and need to make sure their WACC is correct. The current T-Bill rate is 2.5%, market return
DQ Industries is analyzing their capital budgeting options and need to make sure their WACC is correct. The current T-Bill rate is 2.5%, market return 10%, and their beta is .9. Their capital structure consists of $6,000,000 in equity and $4,000,000 in 20 year bonds that sold 7 years ago for $1010 but $20 in flotation costs were paid. The coupon rate is 5.4% and payment is semi-annual. Tax rate is 40%.
What is their cost of debt?
What is their cost of equity?
What is their WACC?
Continuing with DQ Industries, now that they have their current WACC, if they go forwards with the proposed capital project they will need an additional $2,000,000, which will be obtained via a loan at a stated interest rate of 5.5%. What will be the new WACC?
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