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Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is...

Ramblin Wreck is a firm specializing in engineering components. The firm is publicly traded and is considering the following project:

The project will last 5.00 years with an annual cash flow of $40.00 million. The project will require an initial investment of $140.00 million

The firm must determine the cost of capital to evaluate the project. (The project is within the firm’s normal activities)

Ramblin Wreck, Inc. Financial Data:

STOCK DATA: BOND DATA:
Current Price Per Share $28.00 Current Price Per Bond $936.00
# of Shares 2.00 million # of bonds 20,000.00
Book Value $50 million Annual Coupon Rate 9.00%
Face Value Per Bond $1,000
Maturity 10 years


The risk free rate in the economy is currently 2.00%, while investors have a market risk premium of 6.00%. Ramblin Wreck, Inc. has a beta of 1.40. The tax rate is 40.00%.

What is the WACC for the project?

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