Question: Need help on finding the WACC. Please show steps. Green Goose Automation Company currently has no debt in its capital structure, but it is considering
Green Goose Automation Company currently has no debt in its capital structure, but it is considering adding some debt and reducing the percentage of outstanding equity In Its capital structure. The firm's current (unlevered) beta is 1.45, and its cost of equity is 13.15. Because the firm has no debt in Its capital structure, its weighted average cost of capital (WACC) also equals 13.15. The risk-free rate of Interest (TRA) is 3%, and the market risk premium (RPM) is 7%. Green Goose's marginal tax rate is 30%. Green Goose is examining how different levels of debt will affect its costs of debt and equity, as well as its WACC. The firm has collected the financial Information that follows to analyze its WACC. Complete the followilig table. Market debt to equity ratio wa) 0.0 0.2 Market debt to equity ratio (w.) 1.0 Market debt to equity ratio (D/S) 0.00 Bond Rating Before-Tax Cost of Debt a) Levered Beta (b) 1.45 Cost of Equity (1) 13.15% WACC 13.15% 0.25 A 8.40% 1.70 14.90% 0.8 0.6 13.10% 0.67 BBB 8.90% 2.13 17.91% 0.6 0.4 1.50 BB 11.10% 2.97 23.79% 14.18% 0.8 0.2 4.00 14.30% 5.51 41.57% Grade It Now Save & Continue Continue without saving
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
