Assume a world with a tax rate of 34% and no bankruptcy. If WSB Inc. was...

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Assume a world with a tax rate of 34% and no bankruptcy. If WSB Inc. was an all-equity firm its return would be 9.2% per year. However, it does have bonds that currently have a YTM of 6.3%. By how many basis points would WSB's WACC change if it changes from its current debt-to-equity of 0.5 to its optimal one? Assume a world with a tax rate of 34% and no bankruptcy. If WSB Inc. was an all-equity firm its return would be 9.2% per year. However, it does have bonds that currently have a YTM of 6.3%. By how many basis points would WSB's WACC change if it changes from its current debt-to-equity of 0.5 to its optimal one?

Answer rating: 100% (QA)

To calculate the change in WACC we first need to determine WSB Incs current WACC Since it is an alle... View the full answer