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Malitz Inc. recently hired you as a consultant to estimate the company s WACC. You have obtained the following information. Malitz s noncallable bonds mature

Malitz Inc. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information.
Malitzs noncallable bonds mature in 26 years, have an 9.50% annual coupon, a par value of $1,000, and a market price of $970.
The companys tax rate is 45%.
The risk-free rate is 2.50%, the market risk premium is 6.00%, and the stocks beta is 1.25.
The target capital structure consists of 30% debt and the balance as common equity. Malitz uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC?
Question 12Answer
a.
9.95%
b.
9.45%
c.
9.05%
d.
8.62%

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