Capital structure of a company: 20% is in Bond I with YTM 6%. 30% Bond II with YTM of 10% and the rest is common stock equity financing. Risk free rate is 4% expected return on S&P 500 Index is 14% and the equity beta for the company is 1.5. Company's tax rate is 20%: Find

a) company's WACC

b) Company's WACC if usage of Bond I increased to 30% and Bond II to 40% (yields of both bonds won't change: Hint equity beta will change due to increased debt usage)

Answer rating: 100% (QA)

Calculating the Companys WACC a Current Capital Structure Weight of each capital source Bond I20 Bon... View the full answer