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Operating an excavation company in british columbia

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Reference no: EM131760024

Ibrahim and his sons (Ibrahim & Sons) have been operating an excavation company in British Columbia for the last 15 years. The company has been successful in generating revenue and free cash flows (FCF). The company is planning to replace five excavators. The supplier will trade in old excavators and will deduct $150,000 from the total purchase price of new excavators. Each new excavator will cost $100,000.

The corporate tax rate is 30%. The company beta (bA) is 0.90, risk free return (Rf) is 1%, and return on the market portfolio (E(RM) is 8%. Based on the risk, the bank will charge 6% on the commercial loans/chattel mortgages granted for excavators. The company will use 70% equity financing and 30% debt financing.

Based on the above information, please calculate the WACC. Please show all the calculations by which you came up with the final answer.

Reference no: EM131760024

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