The common stock of Buildwell Conservation & Construction Incorporated (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCI's capital structure is 22% debt, paying an interest rate of 5%, and 78% equity. The debt sells at par. Buildwell pays tax at 21%. a. What is BCCI's cost of equity capital? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. What is its WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. If BCCI is presented with a normal project with an internal rate of return of 12%, should it accept the project if it has the same level of risk as the current firm?
The common stock of Buildwell Conservation & Construction Incorporated (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and the market risk premium is estimated at 8%. BCCI's capital structure is 22% debt, paying an interest rate of 5%, and 78% equity. The debt sells at par. Buildwell pays tax at 21%. a. What is BCCI's cost of equity capital? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. b. What is its WACC? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. If BCCI is presented with a normal project with an internal rate of return of 12%, should it accept the project if it has the same level of risk as the current firm?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The common stock of Buildwell Conservation & Construction Incorporated (BCCI) has a beta of 0.9. The Treasury bill rate is 4%, and
the market risk premium is estimated at 8%. BCCI's capital structure is 22% debt, paying an interest rate of 5%, and 78% equity. The
debt sells at par. Buildwell pays tax at 21%.
a. What is BCCI's cost of equity capital?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
b. What is its WACC?
Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.
c. If BCCI is presented with a normal project with an internal rate of return of 12%, should it accept the project if it has the same
level of risk as the current firm?
a. Cost of equity capital
b. WACC
c. Accept the project
Yes
%
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