Question: Gnomes R Us is considering a new project. The company has a debt-equity ratio of .40. The companys cost of equity is 13.50 percent, and

Gnomes R Us is considering a new project. The company has a debt-equity ratio of .40. The company’s cost of equity is 13.50 percent, and the aftertax cost of debt is 6.25 percent. The firm feels that the project is riskier than the company as a whole and that is it should use an adjustment factor of +3 percent. What is the WACC it should use for the project?

Step by Step Solution

★★★★★

3.32 Rating (158 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

To find the required return for the project we need to adjust the companys WAC... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

106-B-C-F-L-T-P (111).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

R130 . Risk Financing Assignment 2 R130: Risk Financing Assignment 2 This assignment includes questions based on content from Lessons 4 and 5. Instructions Review all sections of this document before...

Isolation Company has a debt equity ratio of .80. Return on assets is 7.9 percent, and total equity is $480,000. What is the equity multiplier? Return on equity? Net income? Just Dew It Corporation...

Nuber Company has a debt equity ratio of .80. Return on assets is 9.7 percent, and total equity is $ 735,000. What is the equity multiplier? Return on equity? Net income?

The Bakery is considering a new project it considers to be a little riskier than its current operations. Thus, management has decided to add an additional 1.5 percent to the company's overall cost of...

Problem 12-20 Calculating the WACC (LO 3] Gnomes R Us is considering a new project. The company has a debt-equity ratio of.88. The company's cost of equity is 14.8 percent, and the aftertax cost of...

1) 2) 3) 4) Can someone answer these qustions and give me easy excel calculations I can use for these problems? Liu Industrial Machines issued 142.000 zero coupon bonds seven years ago. The bonds...

Gnomes R Us is considering a new project. The company has a debt-equity ratio of .82. The company's cost of equity is 14.7 percent, and the aftertax cost of debt is 8 percent. The firm feels that the...

Problem 12-20 Calculating the WACC [LO 3] Gnomes R Us is considering a new project. The company has a debt-equity ratio of .71. The companys cost of equity is 14.8 percent, and the aftertax cost of...

Gnomes R Us is considering a new project. The company has a debt-equity ratio of 74 indicating that they have $.74 of debt for each $1.00 of equity. The company's cost of equity is 14.5 percent, and...

I need help on 17 please CHAPTER 12 Cost of Capital a. C. 03 The T-bill rate is 4 percent, and the expected return on the market is 12 percent. Which projects have a higher expected return than the...

Jiminy's Cricket Farm issued a 30-year,5 percent semiannual coupon bond 3 years ago. The bond currently sells for 94 percent of its face value. The company's tax rate is 22 percent. The book value of...

Your sister operates Harbor Ready Parts Company, an online boat parts distributorship that is in its third year of operation. The income statement is shown below and was recently prepared for the...

An oil tank, 14 m diameter and 10 m high, is proposed for a site where there is an existing pipeline. Determine the change in stress at 0.5 m increment imposed by the tank on the pipeline along...

Question 9 ( Mandatory ) ( 1 point ) Determine the slope of the tangent to the curve y = ( 3 x ) ( m i n x ) at the point with x coordinate 2 . a ) 2 b ) 3 2 c ) 3 d ) 0

The rate of return you would get if you bought a bond and held it to its maturity date is called the bonds yield to maturity. If interest rates in the economy rise after a bond have been issued, what...

The Columbia River Crossing (CRC) project is in-tended to improve traffic flow in the I- 5 corridors in the greater Vancouver, Washington, and Portland, Oregon, region. The proposed project is...

The Petron as Twin Towers in Malaysia and the Chicago Sears Tower have heights of about 452 m and 443 m, respectively. If objects were dropped from the top of each, what would be the difference in...

The outside dimensions of a cylindrical soda can are reported as 12.559 cm for the diameter and 5.62 cm for the height. (a) How many significant figures will the total outside area have: (1) two, (2)...

The metric system is a decimal (base-10) system, and the British system is, in part, a duodecimal (base-12) system. Discuss the ramifications if our monetary system had a duodecimal base. What would...

Why are vending services important in a hospital?

Filer Manufacturing has 8.2 million shares of common stock outstanding. The current share price is $52, and the book value per share is $5. Filer Manufacturing also has two bond issues outstanding....

Given the following information for Dunhill Power Co., find the WACC. Assume the companys tax rate is 35 percent. Debt: Common stock: Preferred stock: Market: 3,000 8 percent coupon bonds...

Famas Llamas has a weighted average cost of capital of 12.5 percent. The companys cost of equity is 15 percent and its cost of debt is 8 percent. The tax rate is 35 percent. What is Famas target...

Consider a European call option on IBM stock that matures in 2 months. The strike price is $25, the continuously compounded risk-free rate is 1%, and the current stock price of IBM is $25. Suppose...

A stock has a beta of 1.55 and an expected return of 15 percent. A risk-free asset currently earns 2.2 percent. a. What is the expected return on a portfolio that is equally invested in the two...

Calculate the following ratios for Lake of Egypt Marina Inc, as of year end 2015