Question
Sundoes, a chain of coffee shops, would like to diversify its business operations by branching out into the copy shop business. Sundoes is in the
Sundoes, a chain of coffee shops, would like to diversify its business operations by branching out into the copy shop business. Sundoes is in the 26 % tax bracket and has a debt-to-capital ratio of 35%. The proposed investment in the copy shop business will be financed with 25% debt and 75% equity. The market risk premium is 6.2 % and the risk-free rate of interest is expected to remain constant at 5.5%. Sundoes' cost of debt is 7%. If the average BA for the pure play companies is 0.5 , what is the WAAC for this project? (write this number as a decimal and not as a percentage, e.g. 0.11 not 11%. Round your answer to three decimal places. For example 1.23450 or 1.23463 will be rounded to 1.235 while 1.23448 will be rounded to 1.234)
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