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4) The Red Storm Inc. is planning a $100 million expansion. The expansion will be financed...

4) The Red Storm Inc. is planning a $100 million expansion. The expansion will be financed by selling $45 million in new debt and $55 million in new common stock. The before-tax cost of debt is 5 percent and the cost on equity is 12 percent. If the company is in the 35 percent tax bracket, what is the firm's weighted average cost of capital of the expansion?

A) 5.7525%

B) 6.2600%

C) 6.5400%

D) 7.3875%

E) 8.0625%

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Answer #1

WACC = 0.45(0.05)(1 - 0.35) + 0.55(0.12)

WACC = 8.0625%

Option E is correct

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