Question
OU Corp. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. (1) The firm's noncallable bonds mature
OU Corp. recently hired you as a consultant to estimate the companys WACC. You have obtained the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,000.00. (2) The companys tax rate is 25%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stocks beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity. What is itsWACC? Do not round your intermediate calculations.
a. 8.90%
b. 10.32%
c. 11.03%
d. 9.32%
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