QUESTION 39

Reingaart System is expected to pay a $3.00 dividend at year end (D_i = $3.00), the dividend is expected to grow at a constant rate of 7 percent a year, and the common stock currently sells for $60 a share. The before-tax cost of debt is 8 percent, and the tax rate is 40 percent. The target capital structure consists of 60 percent debt and 40 percent common equity. What is the company's WACC? The company is expanding and the IRR of the expansion project is 7.25 percent. Should the project be accepted or rejected and why? a. 7.17 percent; Rejected because WACC IRR