Question
In: Finance
You have been asked to calculate the WACC for a new project and you have decided...
You have been asked to calculate the WACC for a new project and
you have decided to use the pure play method. You determine the
capital structure is 75% equity and 25% debt (i.e., E/(D+E) =
0.75). To get the cost of debt for the project you plan to use an
annual bond with the following characteristics: Price is $1,000,
Coupon rate is 5%, face value is $1,000 and it has 10 years to
maturity. To get the cost of equity for the factory you plan to use
the “pure-play” method and information from the following
comparable firm: The comparable firm’s Beta (BL) is 1.5; its tax
rate is 20%, and its D/E is 1.00. The T-bond rate is 1.00%, the
market risk premium (MRP) is 5%, and the tax rate for your company
is 25%
What is the beta you would use in the CAPM to get the cost of
equity for the project?
What is the pre-tax cost of debt?
What is the WACC?
Solutions
jeff jeffy answered 2 years agoRelated Solutions
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