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Big Door Company has 10.1 million shares outstanding, which are currently trading for about $20 per share and have an equity beta of 1.2. Big
Big Door Company has 10.1 million shares outstanding, which are currently trading for about $20 per share and have an equity beta of 1.2. Big Door has 18,500 outstanding bonds, with a 6 percent coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 152 basis points over equivalent-maturity Government of Canada debt. The current yield on 10-year Canada bonds is 3 percent, compounded semi-annually. The risk-free interest rate is 3 percent, and the market risk premium is 6.8 percent. The company has a 35 percent tax rate. (Do not round intermediate calculations.) a. Calculate Big Door's WACC. (Round your answer to 2 decimal places.) WACC b. Calculate Big Door's unlevered beta, using the following formula: levered+8 debtx(1-TokD/E Round your answer to 2 decimal places.) Unlevered beta c. If Big Door was 50 percent debt-financed, what would be its WACC? Assume that the beta of its debt is unchanged by the capital structure change. (Round your answer to 2 decimal places.) WACC
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