Question
Suppose Kranz Inc. (a well-respected salmon canning corporation) has the following data: 10 million shares outstanding with a price per share of $40 .4 million
Suppose Kranz Inc. (a well-respected salmon canning corporation) has the following data:
10 million shares outstanding with a price per share of $40
.4 million bonds outstanding with a par value of $1000, an annual coupon of 4% (first coupon is payable in exactly one year) with a 10-year maturity and a 4% yield
The firms beta = 1.3
Its tax rate = .25
The riskfree return is 2% and the expected market risk premium is 7%.
What would Kranz's WACC be if it issued equity to retire all of its debt?
7.82% | ||
7.18% | ||
8.06% | ||
9.34% |
If a firm uses equal amounts of long-term debt and equity in financing its projects, the WACC would just be the average of the cost of equity and the after-tax cost of debt.
True
False
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