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Question - Suppose that as a financial manager you have collected the following information on your company.

Before-tax cost of debt 6.5%

Tax rate 40%

Total long term debt $400,000

Cost of preferred stock 7.25%

Total preferred stock $50,000

Cost of common stock 11%

Total common stock $500,000

Finance Utilized $850,000

The firm is considering undertaking a project that costs $250,000 with an expected return of 13.5%. Not having enough existing capital, how would you recommend going about obtaining the additional funds? Use the current WACC in your analysis. Discuss how the current WACC will change based on the type of financing chosen. What would the result be if we used a firm's weighted average cost of capital for all investments?

Reference no: EM133124591

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