Problem:
Omega Corporation has 10.6 million shares outstanding, now trading at $61 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds at an interest rate of 8%. It pays tax at a marginal rate of 40%. Assume a $230 million debt issuance.
Requirements:
Question 1: What is Omega's after-tax WACC?
Question 2: How much higher would WACC be if Omega used no debt at all? Please explain in detail and also provide step by step solution.