Question
The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk
The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCIs capital structure is 27% debt, paying an interest rate of 6%, and 73% equity. The debt sells at par. Buildwell pays tax at 40%.
a. What is BCCIs cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
b. What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
c. If BCCI is presented with a project with an internal rate of return of 10%, should it accept the project if it has the same level of risk as the current firm?
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Yes
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No
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