Find the wacc for the new project

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The Warren Antique Car Company (…happens to have abbreviation WACC, lol) has an equity beta of 0.7 and 20% debt in its capital structure. The company has risk-free debt that costs 4% before taxes, and the expected rate of return on the market is 16%. Warren is considering the acquisition of a new project in the micro car manufacturing business that is expected to yield 20% on after-tax operating cash flows. Mittal’s Mini’s, which is in the same product line (and risk class) as the project being considered, has an equity beta of 1.8 and has 40% debt in its capital structure. Warren will finance the new project with 20% long-term debt and marginal tax rates are 35% on everything. Find the WACC for the new project and decide what Warren should do.

Reference no: EM132014587

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