· An Individual Project requiring to calculate Weighted Average Cost of Capital (WACC).
· This will require in turn a calculation of required return on equity, which has two possible methods for estimating.
· Describe capital structure.
· Determine the WACC given the above assumptions.
· Indicate how these might be useful to determine the feasibility of the capital project.
· Recommend which is more appropriate to apply to project evaluation.
· Define marginal cost of capital.
· determine the required return for our intended project so that we have a decision criteria defined for the project
· describe capital structure and to calculate the weighted average cost of capital (WACC)
· determine the target WACC for API., given these assumptions:
o Weights of 40% debt and 60% common equity (no preferred equity)
o A 35% tax rate
o Cost of debt is 8%
o Beta of the company is 1.5
o Risk-free rate is 2%
o Return on the market is 11%
o indicate how these costs of capital might be used to determine the feasibility of the capital project
recommendation about which is more appropriate to apply to project evaluation