This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: a. What is the cost of common equity? D0 = $1.25; g = 5% D1 = 1.25 x 1.05 $1.3125 P0 = $29 Cost of equity = (D1/P0) + g [1.3125/29] + .05 9.5259% b. What is the WACC? WACC = (Weight of debt x After-tax cost of debt) + (Weight of equity x cost of equity) After-tax cost of debt = 9% x (1- .35) 5.85% WACC = (40% x 5.85%) + (60% x 9.5259%) 2.34% + 5.71554% 8.06% rounded c. Which projects should BCB accept? If both projects can be accepted if they are not mutually exclusive, the COMPANY CAN ACCEPT BOTH. The reason is that both projects generate returns more than the WACC of 8.06%...
View Full Document
This document was uploaded on 05/02/2011.
- Spring '08