plz help me to find the answer for question 9 thank u A firm has $150 million in

Question

plz help me to find the answer for question 9 thank u

A firm has $150 million in equity and $350 million in debt. The firm recently issued bonds at the market required rate of 10%. The firm's beta is 1.2, the risk-free rate is 5%, and the expected return in the market is 15%. Assume the firm is at their optimal capital structure and the firm's tax rate is 30%, what is the firm's weighted average cost of capital (WACC)? 9. (5 Marks) 10. a. State the differences between a conventional and a non-conventional cash flow. In

Explanation / Answer

Weighted average cost of capital (WACC) = [(S/S+B)*Rs + (B/S+B)*Rb(1-tc)] S = equity, B = debt, Rs = Cost of equity, Rb = cost of debt, tc = corporations tax rate Equity 150 million Debt 350 million Equity + Debt = 500 million Bonds were issued at 10% The tax rate is 30% We find the cost of equity using the Capital asset pricing model Under the Capital Asset pricing model Rs = Rf + Beta*(Rm-Rf) where Rf is the risk free rate, Rm - Rf = difference between the expected return on the market portfolio and the riskless rate. Rs = .05 + 1.2*(.15- .05) Rs = .17 or 17% WACC = [(150/500)*.17 + (350/500)*.10*(1-.30)] WACC = .10 The firms WACC is 10%

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