Dean LL hired you as a consultant to help decide on an expansion project. The firm's...
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Dean LL hired you as a consultant to help decide on an expansion project. The firm's cost structure consists of 55% debt and 45% equity. The cost of equity is 10%. The firm's debt consist of bonds that have an 8% coupon (paid semi-annually) and have 20 years to maturity. The bonds are currently selling at $950 and have a face value of $1000. The firm's tax rate is 30%. 1. What is the company's WACC? Show all your work. 2. The company is expanding and the IRR of the expansion project is 8 percent. Should the project be accepted or rejected? why? Explain. 3. Suppose the firm's tax rate decreases to 25%. Do you expect this to affect the expansion decision? Why or why not? Show all your work. Explain all your answers using the appropriate equations. Your explanation determines your grade Dean LL hired you as a consultant to help decide on an expansion project. The firm's cost structure consists of 55% debt and 45% equity. The cost of equity is 10%. The firm's debt consist of bonds that have an 8% coupon (paid semi-annually) and have 20 years to maturity. The bonds are currently selling at $950 and have a face value of $1000. The firm's tax rate is 30%. 1. What is the company's WACC? Show all your work. 2. The company is expanding and the IRR of the expansion project is 8 percent. Should the project be accepted or rejected? why? Explain. 3. Suppose the firm's tax rate decreases to 25%. Do you expect this to affect the expansion decision? Why or why not? Show all your work. Explain all your answers using the appropriate equations. Your explanation determines your grade
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Answer rating: 100% (QA)
1 Calculating the Companys WACC We can calculate the WACC using the following formula WACC Kd Dd Ke 1 T We Where Kd Cost of Debt Dd Weight of Debt as ... View the full answer
Related Book For
Statistics For Business And Economics
ISBN: 9780132745659
8th Edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
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