Question
Tim works for HydroTech, a manufacturer of high-pressure industrial water pumps. He reports directly to the CFO, and she has asked him to calculate
Tim works for HydroTech, a manufacturer of high-pressure industrial water pumps. He reports directly to the CFO, and she has asked him to calculate HydroTech's WACC. He has gathered the following information about Hydro Tech: its market capitalization (its market value of equity) is $110 million, its beta is 1.1, the total book value of its debt is $60 million, it has $20 million cash, and its cost of debt (using the quoted yields on Hydro Tech's outstanding bond issues) is 4%. In addition, the yield of the 10-year government bond (the risk-free rate) is 2%, the market risk premium is 5%, and the marginal corporate tax rate is 35%. Calculate HydroTech's WACC. When is it appropriate to use this WACC to evaluate a new project? Calculate HydroTech's WACC. WACC = =% (Round to two decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate HydroTechs Weighted Average Cost of Capital WACC we need to use the following formula WACC E V R e D V R d 1 T c textWACC left fracEV tim...Get Instant Access to Expert-Tailored Solutions
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Step: 2
Step: 3
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