Determine appropriate value of marr for evaluating project

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Reference no: EM13917229

Great Eats needs $2,000,000 to finance a new restaurant in Mytown. The project will be funded from the following sources –

Source Funding Cost of Funding Loan $700,000 8%/year/month Bonds $500,000 6%/year/quarter Common Stock $400,000 $0.75 dividend/year; 5% annual share price growth Retained Earnings $400,000 Great Eats effective tax rate is 34% with taxes paid annually. Current stock price is $15/share. Management determines MARR based on WACC plus a constant. Currently the constant is 4% (ie., if WACC is 6%, MARR is 10%). Determine the appropriate value of MARR for evaluating the project.

Reference no: EM13917229

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