check math

Optimus is currently debating on shutting down a profitable project at the end of Year 5 and we have decided to find the weighted average on each capital sourcing used within the project. First, we need to deduce the required rate of return or the cost of equity using the Capital Asset Pricing Model (CAPM). The formula wil measure the value of a project or business' return against its sensitivity to market risk using the beta. CAPM: R(r);= rf+ B (market risk premium) =.04+.8(.06) =8.8% required return for asset With an accurate required return on asset, we can input this to the Weighted Average Cost of Capital (WACC) to deduce the average cost of each funding source. Optimus is currently debt-financing 40% of its capital and equity-financing 60% through common stock, offering no preferred stock. Additionally, the firm's after- debt cost is 6%, which will be used on the other side of the formula WACC WACC = WaKa (1 - t) + Word Kpdf + We Ke "We can erase the Word Kpdf since the firm does not offer preferred stock as a source of equity financing. WACC = WaKa (1 - t) + WeKe =(.40 x .06) + (.60 x .088) .024 + .0528 = .0768 or 7.68%