Question
Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent
Droz's Hiking Gear, Inc. has found that its common equity capital shares have a beta equal to 1.5 while the risk-free return is 8 percent and the expected return on the market is 14 percent. It has 7-year semiannual maturity bonds outstanding with a price of $767.03 that have a coupon rate of 7 percent. The firm is financed with $140,000,000 of common shares (market value) and $60,000,000 of debt. Droz's, is subject to a 35 percent marginal tax rate. The management of Drozs, is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $600,000 for 5 years. What is the fraction of each securities?
What is the pre-tax cost of debt? (Round to the nearest percent.)
What is the cost of common equity? (Round to the nearest percent.)
What is the WACC? (Round to the two decimal places.)
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