Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. smol-kitchen inc. has a wacc of about 10%. specifi

Smol-Kitchen Inc. has a WACC of about 10%. Specifically, its capital structure contains $1 million...

60.1K

Verified Solution

Question

Finance

image

Smol-Kitchen Inc. has a WACC of about 10%. Specifically, its capital structure contains $1 million in equity financing with the cost of equity at 17% and $1 million in debt financing with the cost of debt of 5%. The tax rate is 40%. Smol-Kitchen Inc. is considering a project that is much riskier than typical projects in which SEPFI participates. Accordingly, it is considering an adjustment factor of 5% for this project. Should Smol-Kitchen undertake this new project if the project has an IRR of 7%? Yes, the firm can finance this project by using only debt financing No, this project will have a negative NPV No, since the cost of equity at 17% is higher than the return of this project Yes, since the IRR of this project is higher than Smol-Kitchen's adjusted WACC

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students