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Big Door Company has 10.9 million shares outstanding, which are currently trading for about $18 per share and have a levered equity beta of 1.1.
Big Door Company has 10.9 million shares outstanding, which are currently trading for about $18 per share and have a levered equity beta of 1.1. Big Door has 18,900 outstanding bonds, with a 5% coupon rate, payable semi-annually and due in 10 years. The bonds are rated BBB. Currently the credit spread for BBB is 141 basis points over equivalent-maturity Government of Canada debt. The current yield on 10 -year Canada bonds is 4%, compounded semi-annually. The risk-free interest rate is 2.9%, and the market risk premium is 7%. The company has a 35% 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: (Round your answer to 2 decimal places.) U=1+(1Tc)D/Eherenerd+debh(1Tc)D/E c. If Big Door was 50% 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.)
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