Question: A firm has 2,000,000 shares of common stock outstay…
A firm has 2,000,000 shares of common stock outstanding with a market price of $2.00 per share. It also has 2,000 bonds outstanding, each selling at its par value of $1,000. The bonds have a coupon rate of 7%. The firm’s equity beta is 1.2, the risk-free rate is 5%, and the market risk premium is 8%. Calculate the after-tax WACC if the tax rate is 40%.
