United Producers (UP), an unleveraged firm, has a total market value of $10 million, consisting...
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United Producers (UP), an unleveraged firm, has a total market value of $10 million, consisting of 500,000 shares of common stock selling at $20 per share. The beta on the stock is currently 0.7. Management is considering recapitalizing by issuing $2 million of debt (based on market values) at a before-tax cost of 6%. UP will use the proceeds to repurchase stock at the market price, which you may assume doesnt change in the recapitalization. UPs tax rate is 43%, the ten-year T-bond is yielding 2.7%, and the return on the market portfolio is expected to be 14%. What will UPs new WACC be?
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