Industries has two separate divisions

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Swizer industries has two separate divisions. Division X has less risk so its projects are assigned a discount rate equal to the firm’s WACC minus 3 percent. Division Y has more risk and its projects assigned a rate equal to the firm’s WACC plus 4 percent. The company has a debt equity ratio of .55 and a tax rate of 30 percent. The cost of equity is 15.0 percent and the after-tax cost of debt is 5.0 percent. Presently, each division is considering a new project. Division Y’s project provides a 12.0 percent rate of return and division X’s project provides a 7.0 percent return. Calculate the company’s WACC (rounded to the nearest tenth percent).

12.3 percent

9.3 percent

13.3 percent

6.3 percent

5.3 percent

Reference no: EM131617553

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