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WorkIt Out Enterprise has liabilities of $400 and assets of $1000. The average YTM on its debt is 10% and the tax rate is 20%.

  1. WorkIt Out Enterprise has liabilities of $400 and assets of $1000. The average YTM on its debt is 10% and the tax rate is 20%. The company has announced $1 annual dividends in perpetuity and has a stock price of $5. What is the companys weighted average cost of capital (WACC)? Why is the tax rate included in the WACC? How can the WACC be used to evaluate potential investments?

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