Question
Omega Corporation has 10.5 million shares outstanding, now trading at $60 per share. The firm has estimated the expected rate of return to shareholders at
Omega Corporation has 10.5 million shares outstanding, now trading at $60 per share. The firm has estimated the expected rate of return to shareholders at about 10%. It has also issued long-term bonds at an interest rate of 7% and has a debt value of $225 million. It pays tax at a marginal rate of 21%. a. What is Omegas after-tax WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. What would WACC be if Omega used no debt at all? (Hint: For this problem, you can assume that the firms overall beta [A] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started