The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The...

The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCI’s capital structure is 38% debt, paying an interest rate of 7%, and 62% equity. The debt sells at par. Buildwell pays tax at 21%.

a. What is BCCI’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If BCCI is presented with a normal project with an internal rate of return of 12%, should it accept the project if it has the same level of risk as the current firm?

Expert Solution

ekkarill92 answered 2 years ago

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