Woolworths is considering a new project. The company has a debt-equity ratio of 0.60. All debt is
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Woolworths is considering a new project. The company has a debt-equity ratio of 0.60. All debt is in the form of 30-year bonds with an 8% per annum coupon rate. These bonds are currently selling at par. The company is in a 40% marginal tax bracket. The company has just paid a dividend of $4. The dividends are expected to grow at the rate of 1% forever. The current market price of Woolworth’s common stock is $50. The firm believes that the project is riskier than the company as a whole and that it should use an adjustment factor of +1.5%. What is the WACC it should use for the project under a classical tax system?
Related Book For
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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