Answered: What is its WACC?

Business

Finance

What is its WACC?

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter9: The Cost Of Capital

Section: Chapter Questions

Problem 16P

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Question

The Ashford Twins hired you as a consultant to estimate the company's WACC. You have obtained the following information. (1) The company's noncallable bonds mature in 20 years, have a coupon rate of 8.00% paid annually, a par value of $1,000, and a current market price of $950. (2) The company's tax rate is 21%. (3) The required rate of return on the company's common stock based on CAPM is 9.5%. (4) The target capital structure consists of 40% debt, with the remainder comprised of common equity. What is its WACC? (Ch. 10)

Group of answer choices

7.56%

7.84%

6.42%

9.11%

8.40%

Definition Definition Model that illustrates the correlation between the expected return and risk of capital investment in stock. According to this model, the expected rate of return on equity is equal to the risk-free return added to a risk premium, which is based on the stock beta.

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