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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

  • 2.81%

  • 6.81%

  • 5.81%

  • 4.81%

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