Question
John's Red & White Company currently has a target capital structure of 40% debt, 0% preferred stock, and 60% common stock. The pre-tax cost of
John's Red & White Company currently has a target capital structure of 40% debt, 0% preferred stock, and 60% common stock. The pre-tax cost of debt is estimated to be 10% and the firm's marginal tax rate is 50%. John's R&W does not pay dividends to its shareholders. Its stock currently features a beta of -0.2 and is priced at $40. The expected market return is 11%, and the risk-free rate is 1%. Assuming all relevant information has been provided, what is the weighted average cost of capital for John's Red & White? Provide your answer in % form without the % sign (X.YZ% entered as X.YZ, not 0.0XYZ) Answer:
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