Company, Inc. has 2 million shares of stock outstanding. The stock currently sells for $15 per share. The firm’s debt is publicly traded and has five years until maturity. The debt has a total face value of $15 million, coupon rate of 6.5%, and a yield to maturity of 8%. The risk free rate is 2% and the market risk premium is 9%. You’ve estimated that the firm has a beta of 1.7. The corporate tax rate is 30%. Hint: find the market value of the debt.
a) What percentage of Company, Inc. is financed with debt?
b) What is the WACC for Company, Inc.?
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