Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the

Question:

Daves Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information.

(1) The firm's noncallable bonds mature in 20 years have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00.

(2) The company's tax rate is 40%.

(3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20.

(4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...