The capital structure of Wild West Inc. is as follows:- Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and present price at par
- Preferred shares: $2,000,000 (face value) paying 5% dividends which is trading at 95 percent
- Common shares: Current stock price at $5 per share with 1,000,000 shares issued and outstanding. The risk-free rate is 5%, the market risk premium is 6%, and the beta of Wild West Inc. is 1.15
- Marginal tax rate is 40%Requirements: Show your calculation
a. Determine the WACC for Wild West Inc.
b. Should Wild West Inc. accept an IRR of 7% new project which is of same risk as all the existing projects of the Big Plan? Why and why not?