Question
You are considering multiple capital budgeting projects, and you want to know your possible WACC outcomes. Right now your debt is at 7.3% and your
You are considering multiple capital budgeting projects, and you want to know your possible WACC outcomes. Right now your debt is at 7.3% and your equity costs 12.7% and your tax rate is 22%. You would like to maintain your current capital structure weights and currently have $45 million in debt and $112 million in equity. You will generate $6.3 million of internal equity in the coming year. If you raise your debt less than $3 million then it stays at the current rate, otherwise the new debt rate would be 7.7%. If you raise more than $12 million in debt it moves to 8.4%. If you raise outside equity the new equity rate will be 14.5%.
What amounts of total capital raised will cause the equity or debt cost increases to happen?
What will be the possible WACCs at those levels and what is WACC now?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To determine the amounts of total capital raised that will cause the equity or debt cost increases we need to consider the given conditions Debt cost ...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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