Consider different leverage scenarios: from 0% debt funding to 90% debt funding (i.e. 0%, 10%, 20%, 30%..., 90%). Calculate the WACC of Company ABC for each scenario using the following data.

Unlevered Beta: 0.7

Risk free rate: 12%

Risk premium: 6%

Cost of debt: 14% + Premium depending on level of leverage (see below):

·         From 0-30% debt funding (from AAA to A+): 30 basis points.

·         From 40-60% (from A to BBB): 60bp.

·         From 70-90% (below BBB): 95bp.

Tax rate: 45%

Answer rating: 100% (QA)

WACC for Company ABC under varying leverage 1 Unlevered Beta and RiskFree Rate Unlevered Beta Bu 07 ... View the full answer