The current stock price for a company is $39 per share, and there are 7 million...

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The current stock price for a company is $39 per share, andthere are 7 million shares outstanding. The beta for this firmsstock is 0.9, the risk-free rate is 4.3, and the expected marketrisk premium is 5.7%. This firm also has 100,000 bonds outstanding,which pay interest semiannually. These bonds have a coupon interestrate of 5%, 15 years to maturity, a face value of $1,000, and acurrent price of 1,010.44. If the corporate tax rate is 38%, whatis 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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3.9 Ratings (628 Votes)

The cost of equity is calculated using the capital asset pricingmodelThe formula is given belowKeRfbERmRfWhereRfriskfree rate of return which is the yield on default freedebt like treasury notesRmexpected rate of return on the marketRmRf Market risk See Answer

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The current stock price for a company is $39 per share, andthere are 7 million shares outstanding. The beta for this firmsstock is 0.9, the risk-free rate is 4.3, and the expected marketrisk premium is 5.7%. This firm also has 100,000 bonds outstanding,which pay interest semiannually. These bonds have a coupon interestrate of 5%, 15 years to maturity, a face value of $1,000, and acurrent price of 1,010.44. If the corporate tax rate is 38%, whatis the Weighted Average Cost of Capital (WACC) for this firm?(Answer to the nearest hundredth of a percent, but do not use apercent sign).