What is its WACC after issuing debt? [give your answer in %, with two decimal points precision]

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
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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]
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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