Delta Mills and Franklin Mill are identical firms except for their capital structures.Delta is an unlevered firm with $680,000 of equity.Franklin is a levered firm with $425,000 of equity and $255,000 of debt at an interest rate of 6.2 percent.Both Delta and Franklin have an expected EBIT of $84,000.Ignore taxes.Delta has a WACC of ________ percent and Franklin's WACC is ________ percent.
A)12.35; 11.05
B)12.35; 14.10
C)12.35; 12.35
D)14.10; 14.10
E)16.10; 14.10

Question

Quizplus · Accepted Answer

Since there are no taxes, the WACC for both firms is the same as the cost of equity for Delta, which is 12.35%.

Delta Mills and Franklin Mill Are Identical Firms Except for Their