BlueStar Ferries has 50,000 shares of common stock outstanding with a par value of 1.00 per share. The current share price is 4 per share. The firm has outstanding debt with a par value of 0.4 million, which is selling at 75% of par. The risk-free rate of interest is 4% and the required return on the firms debt is 7%. The risk premium on the market is 9% and the firm has an equity beta of 1.2. The corporation tax rate is 20%. Assume that debt payments are tax deductible.

What is (i) BlueStar Ferries cost of equity and (ii) BlueStar Ferries WACC?

a

(i) 14.80% and (ii) 9.28%

b

(i) 14.80% and (ii) 8.10%

c

(i) 11.84% and (ii) 9.28%

d

(i) 11.84% and (ii) 8.10%

e

None of the above