Under the second scenario, the approximate WACC is *

9.34%

11.03%

5%

9%

None of the above

Problem One MMM Co. has unleveraged beta 1.2, risk free rate 5%, and market risk premium for 4%. It works in the 40% tax bracket. The company is intending to build a new plant, and is studying the scenarios to finance it; The first scenario (1) is to finance the plant totally from equity, without any debt, and then the expected earnings per share will be to $2.7/share. The second scenario(2) is to finance the plant from a combination of debt and equity, where it is intending to borrow 30% of the budget with an interest rate of 9% before tax, then the expected earnings per share will increase to $3.2/share. Required: Use the given above to answer questions 1 through 8