19. Husky Inc. is considering a capital expansion project. The initial investmen

Question

19. Husky Inc. is considering a capital expansion project. The initial investment of undertaking this project is $214,500. This expansion project will last for five years. The net operating cash flows from the expansion project at the end of year 1, 2, 3, 4 and 5 are estimated to be $50,850, $69,783, $71,332, $81,236 and $107,750 respectively.

Husky has a capital structure consisting of 60% debt and 40% equity. The after-tax cost of debt is 15% and the cost of equity is 37.50%. What is Husky’s weighted average cost of capital (WACC)?       

A.   18%
B.    22%
C.    16%
D.    24%

Explanation / Answer

Answer: D.

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