NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years. Debt represents 44 percent of the capital structure. The cost of equity is 13.7 percent, the pretax cost of debt is 8.5 percent, and the tax rate is 34 percent. What is the company’s WACC?
WACC = Weight of debt * Pretax cost of debt * (1 - Tax Rate) + Weight of equity * Cost of Equity
WACC = 44% * 8.5% * (1 - 34%) + 56% * 13.7%
WACC = 2.47% + 7.67%
WACC = 10.14%
NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows...
NuPress Valet has a proposed investment with an initial cost of $62 million and cash flows of $12.5 million for 5 years. Debt represents 44 percent of the capital structure. The cost of equity is 13.7 percent, the pretax cost of debt is 8.5 percent, and the tax rate is 34 percent. What is the company’s WACC? Select one: a. 10.25% b. 9.12% c. 9.75% d. 10.14% e. 9.93%
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