Adjusted WACC.

Ashman Motors is currently an all-equity firm. It has two million shares outstanding,selling for $43 per share. The company has a beta of 1.1, with the current risk-free rate at 3.0% and the market premium at 8.0%. The tax rate is 35% for the company. Ashman has decided to sell $43million of bonds and retire half its stock. The bonds will have a yield to maturity of 9.0%. The beta of the company will rise to 1.3with the new debt. What was Ashman's adjusted WACC before selling the bonds? What is its new WACC after selling the bonds and retiring the stock with the proceeds fromthe sale of the bonds?

Hint: The weight of equity before selling the bond is 100% What was Ashman's adjusted WACC before selling the bonds? %