You work for HydroTech, a large manufacturer of high-pressure industrial water pumps. You report directly to the

Question:

You work for HydroTech, a large manufacturer of high-pressure industrial water pumps. You report directly to the CFO and she has asked you to calculate Hydro Tech's WACC. You have gathered the following information about HydroTech: its market capitalization (its market value of equity) is $100 million, its beta is 1.2, the total book value of its debt is $50 million, it has $10 million cash and its cost of debt (using the quoted yields on HydroTech's outstanding bond issues) is 5%. In addition, the yield of the 10-year government bond (the risk-free rate) is 3%, the market risk premium is 5%, and the marginal corporate tax rate is 35%. Using the above inputs, calculate HydroTech's WACC. When is it appropriate to use this WACC to evaluate a new project?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking...

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