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What is the weighted average cost of capital for instaham

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Reference no: EM132696381

InstaHam, HamsCompany Beta % Equity % Debt is a service that provides you with an endless feed of free bacon, but generates revenue by selling your private data to other firms and to foreign governments looking to influence election results. Suppose the firm faces a tax rate of 32.5%.

The firm recently created a new internal division focused on extracting revenue more directly from its users through a combination of premium honey-glazed bacon subscription and bespoke PPH (pay-per-ham) services. You have collected the following data for and for another firm, , which you believe to be a firm similar in characteristics to this new division and that specializes only in that premium subscription / PPH market:

InstaHam 0.38 39.0% 61.0%

OnlyHams 0.77 86.0% 14.0%

InstaHam plans to finance 14.00% of the new division with debt and the rest with equity.

Assume a cost of debt of 7.90%, a risk-free rate of 4.90%, and a market risk premium of 10.30%.

Problem A) What is the Weighted Average Cost of Capital (WACC) that InstaHam should use when evaluating projects in the new subscription / pay-per-ham division?

Reference no: EM132696381

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