40. The Cola Co. is an all equity firm that distributes soft drinks. The Cola Co....

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40. The Cola Co. is an all equity firm that distributes soft drinks. The Cola Co. has 40,000 shares of stock outstanding at a market price of $58.25 per share. The beta of The Cola Co. is 1.4. The Cola Co. is planning an expansion project to start manufacturing potato chips. Potato Manufacturers, Inc. is an all equity firm that currently produces potato chips. Potato Manufacturers, Inc. has 30,000 shares of stock outstanding at a market price of $41.39 per share. The beta of Potato Manufacturers, Inc. is 1.2. The risk-free rate of return is 4 percent and the market risk premium is 8.5 percent. What cost of capital should The Cola Co. use to evaluate the expansion project? 40. The Cola Co. is an all equity firm that distributes soft drinks. The Cola Co. has 40,000 shares of stock outstanding at a market price of $58.25 per share. The beta of The Cola Co. is 1.4. The Cola Co. is planning an expansion project to start manufacturing potato chips. Potato Manufacturers, Inc. is an all equity firm that currently produces potato chips. Potato Manufacturers, Inc. has 30,000 shares of stock outstanding at a market price of $41.39 per share. The beta of Potato Manufacturers, Inc. is 1.2. The risk-free rate of return is 4 percent and the market risk premium is 8.5 percent. What cost of capital should The Cola Co. use to evaluate the expansion project?

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Cost of Capital can be computed as Risk fr... View the full answer