QUESTION $1$: Calculating ACC

Suppose you are provided the following most recent Balance Sheet

Other Relevant Information:

Common Stock:

The Book Value per Common Share is $$10\mathrm{.}00$

The most recent Dividend per Common Share $)$ was $$2\mathrm{.}00$

Analysts are forecasting a $8\%$ growth rate over the next $4$ Years $($Years $1$ to $4),$ and a

$2\%$ growth rate thereafter $($Years $5$ onwards$)$

Bonds:

The Bonds Outstanding have a Total Face Value of $$20,000,000($Face Value per Bond

is $$1,000)$

The Bond issue has a $7\mathrm{.}00\%$ coupon rate, $9$ years to maturity, and is priced at $103\mathrm{.}00\%$

of par. $($Hint: Use the RATE formula to solve for the semi$-$annual YTM$).$

Note: Bonds pay coupons and are compounded semi$-$annually.

Market and Firm Information:

The Risk$-$Free rate is $4\%$

The Expected Return on the Market is $12\%$

The Firm's Equity Beta is $1\mathrm{.}45$

The Firm's Effective Tax Rate is $30\%$

a$)$ Using the information provided, calculate Slowest Manufacturing Hands Inc.$\text{'}$s

Weighted Average Cost of Capital $($WACC$).$ Be sure to show all of your work.

b$)$ Slowest Manufacturing is considering investing in a new project in an industry that has

an industry beta of $2\mathrm{.}75.$ The industry has a similar capital structure to SMH$.$ Without

doing any calculations, do you think it would be appropriate for SMH to evaluate this

investment using SMH$\text{'}$s WACC, or a higher or a lower WACC? Explain briefly.