InstaHam is a service that provides you with an endless feed of free bacon, but generates revenue by selling your private data to other firms and to foreign governments looking to influence election results. Suppose the firm faces a tax rate of 35.0%. The firm recently created a new internal division focused on extracting revenue more directly from its users through a combination of premium honey-glazed bacon subscription and bespoke PPH (pay-per-ham) services. You have collected the following data for InstaHam and for another firm, OnlyHams, which you believe to be a firm similar in characteristics to this new division and that specializes only in that premium subscription / PPH market: Company Beta % Equity % Debt InstaHam 0.40 45.0% 55.0% OnlyHams 0.89 92.0% 8.0% InstaHam plans to finance 8.00% of the new division with debt and the rest with equity. Assume a cost of debt of 7.30%, a risk-free rate of 5.10%, and a market risk premium of 9.10%. A) What is the Weighted Average Cost of Capital (WACC) that InstaHam should use when evaluating projects in the new subscription / pay-per-ham division? % (Round your answer to 2 decimal places)
InstaHam is a service that provides you with an endless feed of free bacon, but generates revenue by selling your private data to other firms and to foreign governments looking to influence election results. Suppose the firm faces a tax rate of 35.0%. The firm recently created a new internal division focused on extracting revenue more directly from its users through a combination of premium honey-glazed bacon subscription and bespoke PPH (pay-per-ham) services. You have collected the following data for InstaHam and for another firm, OnlyHams, which you believe to be a firm similar in characteristics to this new division and that specializes only in that premium subscription / PPH market: Company Beta % Equity % Debt InstaHam 0.40 45.0% 55.0% OnlyHams 0.89 92.0% 8.0% InstaHam plans to finance 8.00% of the new division with debt and the rest with equity. Assume a cost of debt of 7.30%, a risk-free rate of 5.10%, and a market risk premium of 9.10%. A) What is the Weighted Average Cost of Capital (WACC) that InstaHam should use when evaluating projects in the new subscription / pay-per-ham division? % (Round your answer to 2 decimal places)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:InstaHam is a service that provides you with an endless feed of free bacon, but generates revenue by selling your private data to other firms and to foreign governments looking to influence
election results. Suppose the firm faces a tax rate of 35.0%.
The firm recently created a new internal division focused on extracting revenue more directly from its users through a combination of premium honey-glazed bacon subscription and bespoke
PPH (pay-per-ham) services. You have collected the following data for InstaHam and for another firm, OnlyHams, which you believe to be a firm similar in characteristics to this new division and
that specializes only in that premium subscription / PPH market:
Company
Beta
% Equity
% Debt
InstaHam
0.40
45.0%
55.0%
OnlyHams
0.89
92.0%
8.0%
InstaHam plans to finance 8.00% of the new division with debt and the rest with equity.
Assume a cost of debt of 7.30%, a risk-free rate of 5.10%, and a market risk premium of 9.10%.
A) What is the Weighted Average Cost of Capital (WACC) that InstaHam should use when evaluating projects in the new subscription / pay-per-ham division?
(Round your answer to 2 decimal places)
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