Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Parsley Inc was an all-equity-financed firm generating $3M EBIT every year. It decided to issue $2.24M worth
of bonds and use proceeds to buy back some shares. Before issuing debt the required return on its assets was
9%, the marginal tax rate is 21% and it placed bonds with 4.5% coupon rate. Assume that the risk-free rate is
1% and MRP is 6%.
What is its WACC after issuing debt? [give your answer in %, with two decimal points precision]](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb5e45a81-c06b-49e8-a0a0-6818da4b7707%2F8638bfdc-a5f6-4212-8d9e-b1cec718e08d%2Fnm4x1hc_processed.png&w=3840&q=75)
Transcribed Image Text:Parsley Inc was an all-equity-financed firm generating $3M EBIT every year. It decided to issue $2.24M worth
of bonds and use proceeds to buy back some shares. Before issuing debt the required return on its assets was
9%, the marginal tax rate is 21% and it placed bonds with 4.5% coupon rate. Assume that the risk-free rate is
1% and MRP is 6%.
What is its WACC after issuing debt? [give your answer in %, with two decimal points precision]
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