A large consumer products conglomerate firm uses a WACC of 8.5% as a hurdle rate across all of its projects. To estimate the cost of equity component of the WACC, the firm uses a five-year regression beta, an implied market risk premium, and a risk-free rate based on the 10-year Treasury. To estimate the cost of debt, the firm uses its current bond rating and finds the current default spreads for that rating, adding this spread to the risk-free rate. Is the firm's approach acceptable? Why or why not?

Answer rating: 100% (QA)

The firms approach of using a WACC Weighted Average Cost of Capital with a cost of equity based on a fiveyear regression beta an implied market risk p... View the full answer