Question
You wish to find the appropriate WACC to use for a capital project with a projected ten-year life. The project has the same risk as
You wish to find the appropriate WACC to use for a capital project with a projected ten-year life. The project has the same risk as the overall firm.
The beta of the firm's equity is 1.1 and you estimate the the market risk premium to be 8%.
The average yield on the firm's short-term debt is 4.3%. The firm recently issued a ten-year bond with a yield to maturity of 13.3%. The three-month treasury bill yields 1% and a federal government ten year bond yields 4% The firm's corporate tax rate is 22.4%.
The current debt/equity ratio of the firm is 1, and the firm plans to fund the factory using the same financing mix.
Calculate the appropriate WACC for the steel factory. Express your answer as a decimal and round to the nearest 3 decimal places.
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