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A company has a $500 book value and a $600 market value. Its book value D/E ratio is 1.0 and its market value D/E ratio is 0.80. Its book value cost of debt is 9% and its book value cost of equity is 24%. The market cost of debt is 12% and the market cost of equity is 28%. It is considering a $100 million expansion. It can borrow at the current cost of debt without increasing its cost of equity, but if it funds the expansion using a D/E ratio higher than its market value D/E ratio, the cost of equity will increase to 30%. It tax rate is 40%

What is the company as a whole's WACC if it funds the expansion using:

a. All debt

b. All equity

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92361249

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