Question

Ashman Motors is currently an all-equity firm. It has two million shares outstanding, selling for $43 per share. The company has a beta of 1.1, with the current risk-free rate at 3% and the market premium at 8%. The tax rate is 35% for the company. Ashman has decided to sell $43 million of bonds and retire half its stock. The bonds will have a yield to maturity of 9%. The beta of the company will rise to 1.3 with the new debt. What was the adjusted WACC of Ashman Motors before selling bonds? What is the new WACC of Ashman Motors after selling the bonds and retiring the stock with the proceeds from the sale of the bonds?



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  • CreatedMay 08, 2014
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