Problem
Universal Foods has a debt-to-value ratio of 32%, its debt is currently selling on a yield of 8%, and its cost of equity is 12%, The corporate tax rate is 40%. The company is now evaluating a new venture into home computer systems. The internal rate of return on this venture is estimated at 13.4%. WACCs of firms in the personal computer Industry tend to average around 14%.
• What is Universal's WACC?