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Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all- equity firm, has 20 million shares of
Alpha Corporation and Beta Corporation are identical in every way except their capital structures. Alpha Corporation, an all- equity firm, has 20 million shares of stock outstanding, currently worth $38 per share. Beta Corporation uses leverage in its capital structure. The market value of Beta's debt is $350mil., and its cost of debt is 5 percent. Each firm is expected to have earnings before interest and tax of $135mil. in perpetuity. Assume that every investor can borrow at 5 percent per year. Corporate tax rate is 30%. What would be the Beta Corporation's weighted average cost of capital (WACC)? O A. 8.12% OB. 11.52% O C. 10.92% O D.9.98%
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