Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is considering the following project: The project will last 5.00

Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is considering the following project:

The project will last 5.00 years with an annual cash flow of $40.00 million. The project will require an initial investment of $140.00 million

The firm must determine the cost of capital to evaluate the project. (The project is within the firms normal activities)

Ramblin Wreck, Inc. Financial Data:

STOCK DATA: BOND DATA:
Current Price Per Share $30.00 Current Price Per Bond $922.00
# of Shares 2.00 million # of bonds 20,000.00
Book Value $50 million Annual Coupon Rate 8.00%
Face Value Per Bond $1,000
Maturity 10 years

The risk free rate in the economy is currently 2.00%, while investors have a market risk premium of 8.00%. Ramblin Wreck, Inc. has a beta of 1.41. The tax rate is 36.00%.

What is the weight in debt for the project?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions