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Consider a firm whose debt has a market value of $40million and whose stock has a market value of $60 million (3 million outstanding shares
Consider a firm whose debt has a market value of $40million and whose stock has a market value of $60 million (3 million outstanding shares of stock, each selling for $20/share). The firm pays a 15% rate of interest on its new debt and has beta of 1.41. The corporate tax rate is 34%. Assume that the SML holds, that the risk premium on the market is 9.5%, and that the current Treasury bill rate is 11%. What is this firm's rWACC?
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