Question
A firm's CFO wants to estimate the firm's WACC, and has compiled the following information: The firm's capital structure consists of 60% equity and 40%
A firm's CFO wants to estimate the firm's WACC, and has compiled the following information:
•The firm's capital structure consists of 60% equity and 40% debt.
•The firm has bonds outstanding yield 8.75%.
•The real-risk free rate is 5%.
•The market risk premium is 6%.
•The firm's beta is 1.4.
•The firm's tax rate is 40%.
The firm uses the CAPM to estimate the cost of equity, and does not account for any kind of flotation costs in the calculation of the cost of capital. What is the firm's weighted average cost of capital (WACC)?
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To calculate the firms weighted average cost of capital WACC we need to determine the cost of ...
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Intermediate Financial Management
Authors: Eugene F Brigham, Phillip R Daves
14th Edition
0357516664, 978-0357516669
