Company a has the following capital structurelong term debt, Ask an Expert

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Company A has the following capital structure:

Long term debt $45,000 (average cost of debt is 8%)
Equity $55,000 (cost of equity is 18%)
Tax rate is 40%

Company A is considering a project which would cost $25,000. it is considering raising the capital to fund the project through debt. The cost of debt would be 10%, due to the increase in leverage of the company, not due to external economic conditions.

What is the WACC prior to the expansion? After the expansion? Why would leverage cause the increase in the cost of debt.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9864826

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