Question

There are 2 million common shares of stock outstanding, currently trading for $35 per share.

The most recent dividend paid was $4 per share.

Dividends are expected to increase by 2% per year for the foreseeable future.

There are 25,000 bonds outstanding with a coupon rate of 5% that mature in eight years. The face value of these bonds is $1000, coupon payments are made annually, and the yield to maturity is 4%.

There are 75,000 bonds outstanding with a coupon rate of 3% that mature in twelve years. The face value of these bonds is $1000, coupon payments are made annually, and the yield to maturity is 7%.

The expected return on the market portfolio is 10% and the risk-free rate is 3%.

The company’s beta is 1.3.

Your company’s average tax rate is 25%.

**What is the WACC?**

Answer #1

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Suppose the company’s stock has a beta
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