CFC Inc. is trying to determine its WACC at the optimal capital structure. The firm now...

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CFC Inc. is trying to determine its WACC at the optimal capital structure. The firm now has only debt and common equity, and estimates that it will continue to use debt and common equity in the future to finance its operations. It has determined that the optimal capital structure is given by a debt-to-equity ratio of 0.50. At this ratio, pre-tax cost of debt is 6%. It has estimated that if it had no debt, then its beta would be 1.2. Assume the risk-free rate is 2%, the market risk premium is 7%, and the tax rate is 40%, find the firm's WACC at the optimal capital structure CFC Inc. is trying to determine its WACC at the optimal capital structure. The firm now has only debt and common equity, and estimates that it will continue to use debt and common equity in the future to finance its operations. It has determined that the optimal capital structure is given by a debt-to-equity ratio of 0.50. At this ratio, pre-tax cost of debt is 6%. It has estimated that if it had no debt, then its beta would be 1.2. Assume the risk-free rate is 2%, the market risk premium is 7%, and the tax rate is 40%, find the firm's WACC at the optimal capital structure

Answer rating: 100% (QA)

Calculate the cost of equity Re using the Capital Asset Pricing Model CAPM Re Rf Rm Rf Here Rf is th... View the full answer