Teldar Paper has estimated its WACC to be 8.11%. Teldar's management is deciding whether to invest in a project that has "typical" risk (i.e., a project with a risk profile that is average for the firm). What must be true if Teldar's management is to accept the project?

 a. The project's internal rate of return (IRR) must exceed the WACC of 8.11%.

 b. The WACC of 8.11% must exceed the project's internal rate of return (IRR).

Teldar Paper is estimating its WACC. Teldar's capital structure weights on debt, preferred stock, and equity are 40%, 10%, and 50%, respectively. Its corporate tax rate is 35%. The expected returns required by holders of debt, preferred stock, and equity are 6.00%, 8.00%, and 11.50%, respectively. What is Teldar's WACC?

Answer rating: 100% (QA)

To calculate Teldars WACC we need to first calculate the aftertax cost of debt cost of preferred sto... View the full answer