Omega Corporation has 10 million shares outstanding, now trading at $55 per share. The firm has estimated

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Omega Corporation has 10 million shares outstanding, now trading at $55 per share. The firm has estimated the expected rate of return to shareholders at about 12 percent. It has also issued long-term bonds at an interest rate of 7 percent. It pays tax at a marginal rate of 35 percent.
a. What is Omega’s after-tax WACC?
b. How much higher would WACC be if Omega used no debt at all?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Corporate Finance

ISBN: 978-0133097894

3rd edition

Authors: Jonathan Berk and Peter DeMarzo

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