Suppose that harry Industries is considering a project in its industry for $50 million which it will fund entirely with
Posted: Wed Jul 06, 2022 6:44 pm
Suppose that harry Industries is considering a project inits industry for $50 million which it will fund entirely withdebt at 6% interest. The acquisition is expected to increaseHarry's free cash flow by $7 million the first year, and thiscontribution is expected to grow at a rate of 3% every yearthereafter. Harry currently maintains a debt-to-equity ratioof 1 but with the new debt, the ratio will rise to 1.3. Thecompany's marginal tax rate is 35%, and its current cost of equityis 10%. After making this investment, Harry's cost of equity willbe closest to: