Using traditional wacc equation

Assignment Help Financial Management

Reference no: EM131556778

Hasco Corp. is a multinational provider of lumber and milling equipment. Currently, Hasco’s equity cost of capital is 13% and its borrowing cost is 7%. Hasco has a target leverage ratio of 35%. Hasco starts a new project which is developing a GPS-based inventory tracking system, which will be a separate division in Hasco. Management views the risk of this investment as similar to that of other technology companies’ investment. Suppose Hasco plans to finance the new division using 15% of debt financing (a constant debt value ratio of 15%) with a borrowing cost 8%, and its corporate tax rate is 35%. You have the following information about the comparable company to the new Hasco’s technology investment. (Comparable company: leverage ratio 20%, cost of equity 14%, cost of debt 10%, tax rate = 35%.)

• Estimate the cost of capital of Hasco Corp (using traditional WACC equation)

• Estimate the cost of capital of the new investment (using the two different equations for the cost of capital, which are traditional WACC equation and project based WACC equation.

Reference no: EM131556778

Questions Cloud

Economic and global financial crisis : The economic and global financial crisis. Present a concise 350 words yet well-supported proposal in which you introduce the contemporary.

Explain why it is necessary to use database system : Explain Why it is necessary to use database system? What kinds of information this database system collect? and what information it provides?

Describe social forces such as demographics and culture : Describe social forces such as demographics and culture. (minimum four hundred and fifty words, maximum six hundred words, APA format

Initial idea proposal through final deployment : When looking at the life span for the development of an application or system from the initial idea proposal through final deployment.

Using traditional wacc equation : Hasco Corp. is a multinational provider of lumber and milling equipment. Estimate the cost of capital of Hasco Corp (using traditional WACC equation)

Examine the primary roles of progressive health care law : Rationalize the fundamental way in which these laws play a pivotal part in understanding the roles that today's health care administrators play.

Economic and global financial crisis : Developing a proposal on the The economic and global financial crisis. Present a concise 350 words yet well-supported proposal in which you introduce

Make assumptions where appropriate : You will need to make assumptions where appropriate. When making assumptions, list each and make sure to justify the solution in the Justification section.

Pay for performance enhances employee management : Scripps Health is a long-standing and prominent nonprofit health-based organization that is based in the greater San Diego area.

User Account

All Pages