Debt secured by asset purchases at before-tax cost of debt

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Assume that you have determined the following with respect to your project: a. You will raise $40,000 for your project with debt secured by asset purchases at a before-tax cost of debt = 6%, b. You will raise an additional $20,000 in equity for your project at a before-tax cost of equity= 18% c. You will contribute an additional $40,000 yourself d. Your project’s effective tax rate = 25% Calculate the WACC for your project. 7.b. Now assume that you could raise $60,000 for your project with debt secured by assets, so that you need only contribute $20,000. How does this change your WACC? Should this change increase or decrease the value of your investment? Explain.

Reference no: EM131338011

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