The expected return exceeds the cost of capital

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Reference no: EM131354978

Write the equation for the WACC. Firm A has the following data: Target capital structure of 46% debt, 3% preferred, and 51% common equity; Tax rate 40%, rd 7%; r. 7.5% 11.5%; ie 12.5%. What is the firm's WACC if it does not issue any new stock? (8.02%) what is Firm A's wACC if it issues new common stock? (8.53%) Firm A has 11 equally risky capital budgeting projects, each costing s19,608 million and each having an expected rate of return of 8.25%. Firm A's retained earnings breakpoint is $196.08 million. The firm's WACC using retained earnings is 8.2% but increases to 8.5% if new equity must be issued. The company invests in projects where the expected return exceeds the cost of capital. How much capital should Firm A raise and invest? Why? ($196.08 million; the 11th project would have a higher WACC than its expected rate of return.)

Reference no: EM131354978

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