The current stock price for a company is $38 per share, and there are 8 million...

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The current stock price for a company is $38 per share, andthere are 8 million shares outstanding. The beta for this firmsstock is 0.8, the risk-free rate is 4.3, and the expected marketrisk premium is 6.2%. This firm also has 230,000 bonds outstanding,which pay interest semiannually. These bonds have a coupon interestrate of 7%, 28 years to maturity, a face value of $1,000, and anannual yield to maturity of 8%. If the corporate tax rate is 35%,what is the Weighted Average Cost of Capital (WACC) for this firm?(Answer to the nearest hundredth of a percent, but do not use apercent sign).

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3.6 Ratings (322 Votes)

The cost of equity is calculated using the Capital Asset PricingModel CAPM which is calculated using the formula belowKeRfbERmRfWhereRfriskfree rate of returnRmexpected rate of return on the marketRm Rf Market risk premiumb stocks betaKe See Answer

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The current stock price for a company is $38 per share, andthere are 8 million shares outstanding. The beta for this firmsstock is 0.8, the risk-free rate is 4.3, and the expected marketrisk premium is 6.2%. This firm also has 230,000 bonds outstanding,which pay interest semiannually. These bonds have a coupon interestrate of 7%, 28 years to maturity, a face value of $1,000, and anannual yield to maturity of 8%. If the corporate tax rate is 35%,what is the Weighted Average Cost of Capital (WACC) for this firm?(Answer to the nearest hundredth of a percent, but do not use apercent sign).