What is appropriate wacc for the automated packaging plant

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Question - Your firm is planning to invest in an automated packaging plant, and you are trying to determine the cost of capital of this project. You find two comparable firms in the industry to guide your estimation. Harburtin Industries is an all-equity firm that specializes in this business. Harburtin's equity beta is 0.85. The second firm, Thurbinar Design, has a stock price of $20 per share, and 15 million shares outstanding. It also has $100 million in outstanding debt. Thurinar has an equity beta of 1.00, and debt beta of 0.3. You decide to use the average unlevered beta of the two comparison firms as the estimation of your firm's unlevered beta. Suppose your target debt-to-equity ratio is 25% to fund the project, and your firm can borrow at 5.5% rate. Your firm also has a debt beta of 0.3. The risk-free rate is 4%, the market premium is 5%, and the corporate tax rate is 40%. What is the appropriate WACC for the automated packaging plant?

Reference no: EM133157611

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