Jack Pty Ltd’s current capital structure

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Jack Pty Ltd’s current capital structure is comprised of 50% debt and 50% equity (based on market values). Jack’s equity beta (based on its current level of debt financing) is 1.4, and its debt beta is 0.33. Also, the risk-free rate of interest is currently 5% and the market risk premium is 9%.
a) What is the estimated cost of equity capital for Jack (using CAPM)? If Jack’s marginal tax rate is 30%, what is the firm’s overall weighted average cost of capital (WACC)? (1 mark for the cost of equity, 1 mark for cost of debt, 1 mark for WACC)
3 Marks
b) Jack is considering investing in a new product requiring 75% debt and the rest of the funds are to be financed from the equity capital of the company. Estimate the WACC for this product. Assume the cost of debt will remain the same. (1 mark unrelenting the beta, 1 mark releveling the beta, 1 mark recalculating the cost of equity, 1 mark calculating WACC project).
4 Marks
c) Explain in general (ignore your answers for parts a and b) what happens if a company assesses its projects using its single-firm cost of capital instead of using the project-specific cost of capital.

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