Question
Omega Corporation has 10.9 million shares outstanding, now trading at $64 per share. The firm has estimated the expected rate of return to shareholders at
Omega Corporation has 10.9 million shares outstanding, now trading at $64 per share. The firm has estimated the expected rate of return to shareholders at about 15%. It has also issued long-term bonds at an interest rate of 6%. It pays tax at a marginal rate of 34%. Assume a $245 million debt issuance. a. What is Omegas after-tax WACC? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Omegas after-tax WACC % b. How much higher 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. Round your answer to 2 decimal places.) WACC %
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