Glitter Inc. uses 30 percent common stock and 70 percent debt to finance their operations. The...

 

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Glitter Inc. uses 30 percent common stock and 70 percent debt to finance their operations. The after-tax cost of debt is 5 percent and the cost of equity is 13 percent. The management of Glitter Inc. is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $55,000 in the first year and 120,000 in each of the following 10 years (i.e., $120,000 in years 2 through 11). What is the WACC and should Glitter Inc. invest in this project? Glitter Inc. uses 30 percent common stock and 70 percent debt to finance their operations. The after-tax cost of debt is 5 percent and the cost of equity is 13 percent. The management of Glitter Inc. is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $55,000 in the first year and 120,000 in each of the following 10 years (i.e., $120,000 in years 2 through 11). What is the WACC and should Glitter Inc. invest in this project?

Answer rating: 100% (QA)

To calculate the Weighted Average Cost of Capital WACC for Glitter Inc we need to determine the weig... View the full answer