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