Weighted Average Cost of Capital Assignment | Homework For You
Bam Corporation is considering the following independent projects for the coming year. Their target capital structure is 60 percent debt and 40 percent equity. The after-tax cost of debt is 6 percent and the cost of equity is 15 percent.
Required Rate of Risk
Project Investment Return Level
A $13 million 17% High
B 16 million 9 Low
C 25 million 14 Average
D 10 million 8 Low
E 18 million 16 High
Bam adjusts its WACC for risk by adding 2% to the WACC for high-risk projects and subtracting 1.0% for low-risk projects.
- Determine the WACC for Bam Corporation.
- Determine which projects Bam Corporation should accept and what would be the dollar size of its capital budget. Get Finance homework help today