SAT, 01.07.2021 06:30 tyryceschnitker
Clark Communications has a capital structure that consists of 70 percent common stock and 30 percent long-term debt. In order to calculate Clark’s weighted average cost of capital (WACC), an analyst has accumulated the following information:
• The company currently has 15-year bonds outstanding with annual coupon payments of 8 percent. The bonds have a face value of $1,000 and sell for $1,075.
• The risk-free rate is 5 percent.
• The market risk premium is 4 percent.
• The beta on Clark’s common stock is 1.1.
• The company’s retained earnings are sufficient so that they do not have to issue any new common stock to fund capital projects.
• The company’s tax rate is 38 percent.
Given this information, what is Clark’s WACC?
Answers: 2
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