Encourage the company to borrow

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Cost of debt: 6%; cost of equity: 9% ; Tax: 30% ; Old WACC 5.64%; Assets: 100, liabilities:70 , number of shares 15 millions ,price per share: 20$; earnings: 7.500.000 company ABC is about to invest a pipeline project. In order to finance the project, the company aims at borrowing 5$ million, while issuing 5$ million worth of common stocks. what is the WACC of the project

Assume you are an investor and that you are about to invest in a company. The company can borrow money for interest equal to 10%, while you can personally borrow money for 12%. After investing, would you encourage the company to borrow?

A) yes borrowing will generate value

B) Yes borrowing will boost my ROE

C) No, I can borrow myself at a cheaper rate

D) I am indifferent

Reference no: EM132201262

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