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A firm's balance sheet shows $900 million in shareholder's equity and $690 million in debt. The...

A firm's balance sheet shows $900 million in shareholder's equity and $690 million in debt. The debt has an average yield to maturity of 6.7%. The firm also has $100 million in cash and short-term investments that is not required for business operations. The required return on the firm's equity is 14.0%, the current share price is $31.00, and it has 57 million shares outstanding. The corporate tax rate is 22%. What is this firm’s WACC?

8.0%

8.7%

9.8%

10.4%

11.8%

0 0
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Answer #1

Answer: Option-(d): 10.4% Reason: Firms weighted average cost of capital (WACC) = Weighted cost of equity Weighted after-tax

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