A Company's Capital Structure Is Comprised of 60% Equity and 40

question 56

Essay

A company's capital structure is comprised of 60% equity and 40% debt.The company's tax rate is 30%.The company's bonds have a coupon rate of 6% and mature in seven years.Currently, these bonds are trading in the open market to yield 6.7%.Government bonds are currently yielding 4.5%.The company's stock has a Beta of 1.3.Stock market expected returns is estimated to be 9%, while the market risk premium is expected to be 4.5%.Given the above information, calculate the company's WACC.

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Definitions:

Stress

A condition or feeling experienced when a person perceives that demands exceed the personal and social resources the individual is able to mobilize.

Perception Of Ability

An individual's belief in their capacity to execute behaviors necessary to produce specific performance attainments.

Stressful Event

A situation or occurrence that triggers a psychological or physical reaction.

General Adaptation Syndrome

A theoretical model describing the body's response to stress in three stages: alarm, resistance, and exhaustion.