QUESTION 40

You were hired as a consultant to Keys Company, and you were provided with the following data: Target capital structure: 40 percent debt, 10 percent preferred, and 50 percent common equity. The after-tax cost of debt is 4.00 percent the cost of preferred is 7.50 percent, and the cost of equity is 11.50 percent. What is the firm's WACC if the tax rate is 25 percent? Should the firm accept an expansion project that requires an initial investment of $250,000 and that has an annual cash inflow of 40, 01993 for nine years? a. 7.55 percent, no because WACC is less than the IRR b. 7.70 percent, no because WACC is less than the IRR c. 7.94 percent, no because WACC is less the IRR