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Compute the wacc for the company

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ou try to evaluate an investment project for a company. A firm uses $38 million of debt and $15 million of preferred stock. The current market price of common stock is $20 with 4,125,000 shares outstanding, which it has used recently to finance in a number of its recent operating asset purchases. If the before-tax cost of debt is 8% and its cost of preferred stock is 10%. The risk free rate is assume to be 5%, while the market risk premium is 8%, with an above market level firm beta of 1.25 (slightly more volatile than the market). Assume the corporate tax rate for this firm is 35%.

Based on the information given, compute the WACC for the company.

If an investment project generates a return of 11% and has similar risk level as the overall company, would you accept this project? Why or why not?

Reference no: EM131340934

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