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Suppose there is a soft drinks company considering expanding into health foods, and building a new plant for health food production. The average asset beta for health food companies is .8, while that for soft drinks firms is 1.2. If the risk-free rate is 2% and the equity premium is 5%, determine the discount rate for the new project if it were 100% equity financed. According to the Modigliani-Miller Theorem, what would be the weighted average Cost of capital (WACC) for the project if it had a debt to equity ratio of one?

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Financial Management, Finance

Category:- Financial Management
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