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You were hired to evaluate BB Inc's expansion project. The firm's common stock has a beta of .95. The risk-free rate is 2.7 percent and
You were hired to evaluate BB Inc's expansion project. The firm's common stock has a beta of .95. The risk-free rate is 2.7 percent and the expected return on the market is 10 percent. The before-tax cost of debt is 7 percent, and the tax rate is 40 percent. Their target capital structure consists of 60 percent debt and 40 percent common equity.
- What is the company's WACC? Show all your work.
- The company is expanding and the IRR of the expansion project is 8 percent. Should the project be accepted or rejected? why? Explain.
- Do you expect the expansion decision to change if the risk free rate rises to 3.5%? Why or why not? Explain.
Show all your work. Explain all your answers using the appropriate equations. Your explanation determines your grade
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