The common stock of Buildwell Conservation & Construction Inc. (BCCI) has a beta of .9. The Treasury bill rate is 4%, and the market risk premium is estimated at 7%. BCCI’s capital structure is 37% debt, paying an interest rate of 6%, and 63% equity. The debt sells at par. Buildwell pays tax at 40%.
a. What is BCCI’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal place.)
Cost of equity capital= ______ %
b. What is its WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
WACC= ____ %
c. If BCCI is presented with a project with an internal rate of return of 10%, should it accept the project if it has the same level of risk as the current firm?
Yes or No