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The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The...

The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk premium is estimated at 10%. BCCI’s capital structure is 35% debt, paying an interest rate of 10%, and 65% equity. The debt sells at par. Buildwell pays tax at 21%.

a. What is BCCI’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

c. If BCCI is presented with a normal project with an internal rate of return of 10%, should it accept the project if it has the same level of risk as the current firm?

Answer
a. Cost of equity capital %
b. WACC %
c. Accept the project
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Answer #1

a) Cost of equity (ke) = Rs + Market riste premium & Bete - RJ = 440 Market riste premium = 10%. ßetar og i ke= 4+ 10x.g. = 1

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