Question
You found three independent firms solely engaging in the same business of your division. Firm A has a beta of 1.7 and D/E of 1.2,
You found three independent firms solely engaging in the same business of your division. Firm A has a beta of 1.7 and D/E of 1.2, firm B has a beta of 1.5 and D/E of 1, and firm C has a beta of 1.2 and D/E of 0.7.
Your divisions D/E is 1.5. The tax rate is 40%. The before tax cost of debt is 8%. The risk-free rate is 4% and the market return is 11%.
What is your division's WACC?
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Fundamentals of Investing
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
12th edition
978-0133075403, 133075354, 9780133423938, 133075400, 013342393X, 978-0133075359
