Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Adjusted WACC. Thorpe and Company is currently an all-equity firm. It has three million shares selling for $30 per share. Its beta is 1.3, and

image text in transcribed

Adjusted WACC. Thorpe and Company is currently an all-equity firm. It has three million shares selling for $30 per share. Its beta is 1.3, and the current risk-free rate is 4.4%. The expected return on the market for the coming year is 11.1%. Thorpe will sell corporate bonds for $30,000,000 and retire common stock with the proceeds. The bonds are twenty-year semiannual bonds with a 10.2% coupon rate and $1,000 par value. The bonds are currently selling for $1,034.79 per bond. When the bonds are sold, the beta of the company will increase to 1.5. What was the WACC of Thorpe and Company before the bond sale? What is the adjusted WACC of Thorpe and Company after the bond sale if the corporate tax rate is 40% ? Hint: The weight of equity before selling the bond is 100%. What was the WACC of Thorpe and Company before the bond sale? \% (Round to two decimal places.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Multinational Business Finance

Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett

6th Edition

0201538997, 978-0201538991

More Books

Students also viewed these Finance questions

Question

Describe the uses of information gained from job analysis.

Answered: 1 week ago