Question
Use the following data to answer the question: The company has a target capital structure of 40% debt and 60% equity. Bonds with face value
Use the following data to answer the question:
The company has a target capital structure of 40% debt and 60% equity. Bonds with face value of $1,000 pay a 10% coupon (semiannual), mature in 20 years, and sell for $849.54
The company stock beta is 1.2.
Risk-free rate is 10%.The average return on the market is 15%.
The company is a constant-growth firm that just paid a dividend of $2, sells for $27 per share, and has a growth rate of 8%.
The company's marginal tax rate is 40%.
a-Calculate the weighted average cost of capital (WACC )of the company
b-What happens to a company's weighted average cost of capital (WACC) if the firm's corporate tax rate increases?
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