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Homework Answers
a)
As per CAPM cost of equity = risk free rate + beta*market risk premium
= 4% + 0.9*8%
= 11.20%
b)
WACC = (We*Ke) + (Wd*Kd*(1-tax))
where, We and Wd = weights of equity and debt
Ke and Kd = cost of equity and debt
WACC = (0.73*11.20 + 0.27*6*(1-0.4))
= 9.15%
c)
Answer is Yes. because Project IRR is greater than WACC
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