tim

works

for

HydroTech,

a manufacturer of high-pressure industrial water pumps.

He

reports

directly to the CFO, and she has asked

him

to calculate

HydroTech's

WACC.

He

has

gathered the following information about

HydroTech:

its market capitalization (its market value of equity) is

$110

million, its beta is

1.3,

the total book value of its debt is

$50

million, it has

$10

million cash, and its cost of debt (using the quoted yields on

HydroTech's

outstanding bond issues) is

6%.

In addition, the yield of the

10-year

government bond (the risk-free rate) is

4%,

the market risk premium is

6%,

and the marginal corporate tax rate is

35%.

Calculate HydroTech's WACC. When is it appropriate to use this WACC to evaluate a new project?