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Unformatted text preview: the firm’s beta or cost of debt, can we use the WACC to discount the project’s cash flows? Example 2: New WACC if leverage changes. Your firm has a current cost of debt of 5% before tax. Your firm’s current equity beta is 1.2. The market return is 9%, and the risk free rate is 3%. You current leverage is 20% of firm value. If you change your leverage to 40% by raising new debt capital, which will not change your debt beta of 0.4, what is your new WACC (tax rate is 40%)?...
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- Fall '08