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Universal Foods has a debt-to-value ratio of 32%, its debt is currently selling on a yield of 8%, and its cost of equity is 12%.
Universal Foods has a debt-to-value ratio of 32%, its debt is currently selling on a yield of 8%, and its cost of equity is 12%. The corporate tax rate is 40%. The company is now evaluating a new venture into home computer systems. The internal rate of return on this venture is estimated at 13.4%. WACCs of firms in the personal computer industry tend to average around 14%. a. What is Universal's WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) b. Will Universal make the correct decision if it discounts cash flows on the proposed venture at the firm's WACC? Yes No
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