Separately from the analysis in the previous question, Mathews Valuation Consultants has concluded that the equity cost of capital is 9.1%. Using the below data and the 9.1% estimate: what is the weighted average cost of capital for Mason?

Global Stone is valuing its subsidiary, Mason International. It will use the Capital Asset Pricing Model (CAPM) to calculate the equity cost of capital and WACC. Mason is not a small company. What is the WACC, given the following data:-

R_f = Risk-free rate of return ............................................................................................................................1%

R_D = Interest rate on company debt..............................................................................................................4%

β = Beta representing level of non‑diversifiable risk associated with the company’s return.................1.4

rp_gm = Equity risk premium – general market..............................................................................................5%

Rp_sc = Equity risk premium – small company ..............................................................................................4%

α = Unsystematic risk factor........................................................................................................................Zero

D/E = Debt/Equity ratio (market)....................................................................................................................1:1

Τ_c = Tax rate....................................................................................................................................................21%

Τ_a = Time period for amortization of intangibles.......................................................................................40 yrs

Group of answer choices

a. 7.85%

b. 6.13%

c. 5.0%

d. 5.525%