Question
Monster Tires is considering an expansion which involves opening a new location for its tires manufacturing. This new project is estimated to be the same
Monster Tires is considering an expansion which involves opening a new location for its tires manufacturing. This new project is estimated to be the same level of risk as the firm's existing projects. For this new manufacturing project, the firm would need to raise money by selling $710,000 worth of new equity, $253,000 worth of new preferred stock shares, and borrow $553,000 by selling new corporate bonds. The annual costs of equity, preferred stock shares, and corporate debt equal 15%, 7%, and 3%, respectively. Monster Tires pays a 33% tax rate on its corporate income.
Calculate Monster Tires' average annual cost of running this new tire business, or the Weighted Average Cost of Capital.
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