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M/s. Fatema 2 Corp. have 10 million shares outstanding, now trading at $55 per share. The firm has estimated the expected rate of return to
- M/s. Fatema2 Corp. have 10 million shares outstanding, now trading at $55 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds at an interest rate of 7% and has a debt value of $200 million. It pays tax at a marginal rate of 21%.
- What is Fatema2s after-tax WACC?
- How much higher would WACC be if the firm used no debt at all? (Hint: you can assume that the firms overall beta is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible).
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