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A company would like to figure out if a 10-year project is worth it. The company is in the 25% income tax bracket. Weighted Average Cost of Here's what else is known: Capital Project's initial cost: $700,000 If it doesn't use a Project's after-tax cash flow: $90,000 per year loan Beta of the company's equity = 1.4 Required return on the company's equity = 15.2% If it uses a loan 50% of the initial cost would be covered with an interest-only riskless loan Even more information: Treasury bill rate 4%. It is a proxy for the riskless asset. Market portfolio expected return = 12% The company would like to use the WACC approach to evaluate this levered project. According to this approach: RwAcc = (Weight of levered equity) x (Cost of levered equity) + (1 - Tc) X (Weight of debt) x (Cost of debt) RwAcc = (Weight of levered equity) x (Cost of levered equity) + (1 - Tc) X (Weight of debt) x (Cost of debt) In this formula, weight of levered equity = [Select ] = 1 cost of levered equity = [Select] Tc= [Select ] weight of debt = [ Select] V and cost of debt = [ Select] Increase the decimal places in all intermediate steps to 6 or even more. The more the better! Only round your final numeric answers to TWO decimal places. The resulting RWACC = [ Select ] HINT #1: You won't need some of the numbers that are given. HINT #2: Use the "debt-to-BOOK-value-of-equity method" (which is much easier!) rather than the "debt-to-MARKET-value-of-equity method" in order to calculate the debt-to-equity ratio, if needed. proach: (Cost of levered equity) + (1 -T) = KS uity = [ Select ] [ Select] 20 % 30 % 40% ight of 50 % 60 % 70 % d cost 80% rease the decimal places in all 2. The more the better! Only round decimal places V ne numbers that are given. alue-of-equity method" (which is to-MARKET-value-of-equity method" uity ratio, if needed. rding to this approach: evered equity) (Cost of levered equity) ost of debt) t of levered equity [ Select ] y = (Select ] V ,c [ Select] 15.10 % 17.52 % 20.97 % 23.60 % 39.92 % . Increase the decimal places 6 or even more. The more the better! O swers to TWO decimal places. [ Select ] eed some of the numbers that are given. ot-to-BOOK-value-of-equity method" (w han the "debt-to-MARKET-value-of-equi he debt-to-equity ratio, if needed. levered project. According to this appro RWACC = (Weight of levered equity) x (C (Weight of debt) (Cost of debt) In this formula, weight of levered equity cost of levered equity = [Select ] and co [ Select] weight [ Select) 20% 25% 30 % 32% Increa 34 % 40% more. TI your final numeric answers to TWO dec The resulting RWACC [ Select] HINT #1: You won't need some of the nu HINT #2: Use the "debt-to-BOOK-value much easier!) rather than the "debt-to-N in order to calculate the debt-to-equity to this approach RwAcc = (Weight of levered equity) (Cost (Weight of debt) x (Cost of debt) In this formula, weight of levered equity cost of levered equity = { [ Select) Select) weight of and costo . Increase th [ Select] [ Select) 20% 30% 40% 50 % 60% 70 % 80 % TTIC TESUS WACC more. The m wo decimal HINT #1: You won't need some of the numbe HINT #2: Use the "debt-to-BOOK-value-of-e much easier!) rather than the "debt-to-MARK in order to calculate the debt-to-equity ratio, RWACC = (Weight of levered equity) (Co (Weight of debt) x (Cost of debt) In this formula, weight of levered equity cost of levered equity = [ Select) [Select] weight [ Select) V and co X. Increas more. Th wo dec [ Select [ Select ] 2.5 % 3.0 % 3.5% 4.0 % 4.5 % 5.0 % 5.5 % HINT #1: You won't need some of the nu HINT #2: Use the "debt-to-BOOK-value much easier!) rather than the "debt-to-M in order to calculate the debt-to-equity O eight of levered equity) x (Cost of levered equity) + (1 debt) x (Cost of debt) ula, weight of levered equity - Select) ered equity Select) 1. Tc- weight of debt - and cost of debt - Increase the decimal places in e steps to 6 or even more. The more the better! Only umeric answers to TWO decimal places. 8 Rwacc = [ Select ! [Select] 7.50 % 8.45 % bu won't ne 9.85% e given 13.30 % se the "deb 14.36 % thod" (whi 15.40% T!) rather than the CUT OUTIRREVauc-of-equity Calculate the debt-to-equity ratio, if needed

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