The required return on the stock of Moe's Pizza is 11.2 percent and aftertax required return on the company's debt is 3....
The required return on the stock of Moe's Pizza is 11.2 percent and aftertax required return on the company's debt is 3.52 percent. The company's market value capital structure consists of 73 percent equity. The company is considering a new project that is less risky than current operations and it feels the risk adjustment factor is minus 2.3 percent. The tax rate is 40 percent. What is the required return for the new project?
Multiple Choice
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6.83%
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11.05%
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6.45%
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11.43%
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9.13%
Homework Answers
WACC = 0.27(0.0352) + 0.73(0.112)
WACC = 9.13%
WACC after risk adjustment = 0.0913 - 0.023
WACC after risk adjustment = 6.83%
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