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Suppose that Tech wants to diversify its business by acquiring for the assets of a company in the trucking industry. There are three Trucking companies
- Suppose that Tech wants to diversify its business by acquiring for the assets of a company in the trucking industry. There are three Trucking companies (Grate, Paltry and Dropa) traded in the stock market, and their information are provided in the table below. Tech finances the acquisition with the same capital structure of its shoe business (i.e.: D/EV=40%). Assuming that the corporate tax is 25%, the risk free rate is 3% and the equity risk premium is 6%, what is the WACC that Tech should use to evaluate its investment in the trucking industry? (15 points)
| Company | Equity beta | Debt/equity Ratio | Debt beta |
| Grate | 1.13 | 0.15 | 0.00 |
| Paltry | 1.80 | 1.06 | 0.15 |
| Dropa | 3.27 | 3.52 | 0.30 |
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Public Finance And Public Policy
Authors: Jonathan Gruber
7th Edition
1319281109, 9781319281106
