B9. (Estimating the WACC)
Corporate Financial Management (3rd Edition)
Emery, Douglas R., Finnerty, John D., & Stowe, John D. (2007)
Individual assignment: Text Problem Set
Chapter , Problems
B9. (Estimating the WACC) Fuerst Cola has 10,000 bonds and 400,000 shares outstanding.
The bonds have a 10% annual coupon, $1,000 face value, $1,050 market value, and 10-year maturity. The beta on the stock is 1.30 and its price per share is $40. The riskless return is 6%, the expected market return is 14%, and Fuerst Cola’s tax rate is 40%.
a. What is the after-tax cost of debt financing?
b. What is the after-tax cost of equity financing?
c. What is the WACC?
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