Question
Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is
Anna is a Vice President at the J Corporation. The company is considering investing in a new factory and Anna must decide whether it is a feasible project. The annual returns for J Corp. and for a market are given below. Currently, the risk-free rate of return is 1.9% and the market risk-premium is 6.1%.
Year J Corp. Return (%) Market Return (%)
1 -2.35 -1.10
2 17.03 8.59
3 25.67 12.91
4 23.67 11.91
5 -17.95 -8.90
6 31.55 15.85
7 73.05 36.60
8 25.97 13.06
9 8.05 4.10
10 19.03 9.59
11 -11.93 -5.89
12 -1.95 -0.90
Beta of J Corp.'s stock = 2.0
Expected rate of return on J Corp. stock for the coming year = 14.10%
Now that Anna has determined an appropriate rate of return for J Corp.'s stock, she must calculate the firm`s Weighted Average Cost of Capital. There are currently 51.5 million J Corp. common shares outstanding. Each share is currently priced at $7.69. As well, the firm has 5000 bonds outstanding and each bond has a face value of $10,000, a yield to maturity of 3.59% and a quoted price of $10,159.10. J Corp.'s tax rate is 30% J Corp. has no preferred shares outstanding.
What is J Corp.'s WACC?
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