HD Inc. has been in the auto industry for a long time. The WACC of the firm is 15%. The D/E ratio is .5. The YTM of the debt is 3%. Tax rate is 35%. Recently, the firm is planning to enter the local personal lending market in City N. There are three personal lending firms in City N already. They are the followings.
FIRM WACC D/E Cost of Debt Total Lending Tax Rate
A 10% 0.8 3% 1.2 M 30%
B 11% 1.0 3% 1.8 M 30%
C 7% 0.5 3% 1 M 35%
Both A and B are in personal lending only, while C has a division in retail business. What is the expected WACC of the personal lending project of HD Inc.? Firm WACC D/E Cost of Debt Total Lending Tax Rate A 10% 0.8 3% $1.2M 30% B 11% 1.0 3% $1.8M 30% C 7% 0.5 3% $1M 35%