Spellman Transportation's balance sheet shows a total of non-callable $45 million long-term debt with a coupon rate
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Question:
Spellman Transportation's balance sheet shows a total of non-callable $45 million long-term debt with a coupon rate of 7.00% and a yield to maturity of 6.00%. This debt currently has a market value of $50 million. The company has 10 million shares of common stock, and the book value of the common equity (common stock plus retained earnings) is $65 million. The current stock price is $22.50 per share; stockholders' required return, Rs, is 14.00%; and the firm's tax rate is 40%. What is the WACC based on the market value weights of debt and equity?
a. 11.79%
b. 12.11%
c. 12.68%
d. 13.02%
e. 13.26%
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