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What is the firm's WACC?
The firm has 80,000 bonds outstanding that are selling at par value. Bonds with similar characteristics are yielding 8.5%. The company also has 4 million shares of common stock outstanding. The stock has a beta of 1.1 and sells for $40 a share. The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. What is the firm's WACC?
a. 7.10% b. 7.39% c. 10.38% d. 10.65% e. 11.37% (80/240) x .085 x (1-.35) =.01823 or 1.823% (160/240) x .04 + 1.1 x (.08-.04) = .05544 or 5.544% WACC = 1.823 + 5.544 = 7.367% I'm not doing something right and I'm not sure what that something is! |
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