Provide estimate of terrin weighted average cost of capital

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Reference no: EM132772006

As a valuation consultant, part of your job is to determine an appropriate required rate of return for the Terrin Corporation. Terrin has a market capitalization of $6,000 (based on 400 shares of stock outstanding and last year's net income of $800). Its beta is 1.4, its debt/equity ratio is 1.25, its tax rate is 33%, its payout ratio is 75%, its inventory turnover is 6.5, and its dividends are expected to grow by 4% per year throughout the forseeable future. Terrin's average collection period (ACP) is 42 days and its debt is rated BB. While none of Terrin's bonds are currently trading in the market, you do locate information for a bond of Mitchell Company, a firm in Terrin's industry. The Mitchell bond price is quoted in the Wall Street Journal at 93, its coupon rate is 6%, it matures in 10 years, and it is rated A.

Problem 1: Provide an estimate of Terrin's weighted average cost of capital (WACC).

Reference no: EM132772006

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