Week Seven Homework Assignment

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Problem $13-4$ WACC $($LO$1)$

The common stock of Buildwell Conservation & Construction Incorporated $(BCCI)$ has a beta of $0\mathrm{.}9.$ The Treasury bill rate is $4\%,$ and the market risk premium is estimated at $8\%.$ BCCl$\text{'}$s capital structure is $30\%$ debt, paying an interest rate of $5\%,$ and $70\%$ equity. The debt sells at par. Buildwell pays tax at $21\%.$

a$.$ What is BCCl$\text{'}$s cost of equity capital?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $1$ decimal place.

b$.$ What is its WACC?

Note: Do not round intermediate calculations. Enter your answer as a percent rounded to $2$ decimal places.

c$.$ If $BCCl$ is presented with a normal project with an internal rate of return of $12\%,$ should it accept the project if it has the same level of risk as the current firm?

Answer is complete but not entirely correct.

$\backslash$table$[[$a$.$ Cost of equity capital,$10\mathrm{.}3$ &$,\%$