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You have been asked to compute the WACC (Weighted Average Cost of Capital). To assist in this process, you have been provided with the following

You have been asked to compute the WACC (Weighted Average Cost of Capital). To assist in this process, you have been provided with the following information. The firm has $37 Million of 15-year bonds outstanding. The bonds carry a 3% coupon, paid semi-annually, and they currently quoted at 97.00. The firm has six million shares outstanding. The shares are currently trading at $25, they are expected to pay a dividend of $3.00 at the end of the year and the dividend is expected to grow at 4% per year. You also note that the current yield on T Bills is 1.5%, the firms Beta is 2 and the market risk premium is 5%. The firms tax rate is 20%.

What is the cost of equity using the CAPM?

Multiple Choice

  • 11%

  • 15%

  • 12%

  • 19%

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