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lease calculate a firms WACC (weighted average cost of capital) using the following information: The firms ROE is 12% and its Payout Ratio is 40%
lease calculate a firms WACC (weighted average cost of capital) using the following information:
- The firms ROE is 12% and its Payout Ratio is 40%
- The firm has 9 million shares outstanding, each of which trades at a price of $11. The firm expects to pay a dividend of $1.50 at the end of the year.
- The firm has outstanding debt with a face value of $70 million. These are all 20-year bonds with a 5% coupon (paid semi-annually) and they are selling at a price of $1,352.11 per $1,000 bond.
- The yield on Treasury bills is 2.5%.
- The return on the market is 7%.
- The firms beta is 2.
- The firms tax rate is 30%.
What is the firms WACC (using the CAPM for the cost of equity)?
Multiple Choice
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2.81%
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6.81%
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5.81%
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4.81%
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