Question
FINA Corp. is considering two potential projects. One is to further develop its current auto parts. The other project is to enter a new industry
FINA Corp. is considering two potential projects. One is to further develop its current auto parts. The other project is to enter a new industry of kitchen appliances. FINA Corps beta without the new project is 2. The market risk premium is 7%. The risk-free rate is 3%. The total shares outstanding of FINA is 20 million. The stock price now is $5 per share. Tax rate is 35%. Following three firms are in the new industry that FINA wants to enter. Firm A is a competitor of FINA in auto parts. Firm A also has a division in kitchen appliances. Firm B is producing kitchen appliances and all kinds of furniture. Firm C is in kitchen appliances business only.
Firm | WACC | D/E | Cost of Debt | Tax Rate |
A | 10% | 0.8 | 3% | 30% |
B | 11% | 1.0 | 3% | 30% |
C | 13% | 0.25 | 3% | 35% |
What is the WACC of the project to enter kitchen appliances market?
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