Regarding WACC, determine an opportunity cost on project
Regarding the WACC which has to be applied to a project, must it be an expected return, the average historical return or an opportunity cost on similar projects?
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The WACC is neither an expected return, nor an opportunity cost nor an average historical return. This WACC is a weighted average of required returns.
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AB Restaurants has debt/equity ratio .25, and its leveraged beta is 1.5. Its tax rate is 30%, and its cost of equity is 15%. The risk-free rate is 5%. CD Restaurants has debt/equity ratio .4, and tax rate 35%. Find the cost of equity for CD.
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