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The company A decides to launch a new product line on which will be financed with loan funds at a rate of 50%. In the
The company A decides to launch a new product line on which will be financed with loan funds at a rate of 50%. In the industry in which plans to operate, the average equity loan ratio is 30% loans to 70% same. The industry average b is 1.8. The lending rate of the industry is an average of 8% but the company has agreed to borrow for the new investment with 7%. The marginal tax rate is 25% and the interest rate is risk free 2% and the expected market return is 10%
i)Calculate the average leveraged and without leveraged cost of (equity) capital of the industry?
ii)Calculate the cost of equity of the company?
iii)Calculate the RWACC of the company?
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