Market risk premium is estimated-cost of capital

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The common stock of Gulf Corp. has a beta of 0.8. The Treasury bill rate is 4 percent and the market risk premium is estimated at 8 percent. Gulf Corp.'s capital structure is 25 percent debt paying a 5 percent interest rate, and 75 percent equity. Gulf Corp. pays no taxes. a) what is Gulf Corp's cost of capital? b) what is WACC? c) Gulf Crop is evaluating a project with an internal rate of return is 12 percent, should they accept the project? d) if the project in (c) will generate cash flow of 600,000 per year for 5 years, what is the most Gulf Corp. should be willing to pay to initiate the project?

Reference no: EM13937176

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