The Whitehorse Book Company has 140 million shares outstanding. The market price of one share is currently $2. The company's debentures are publicly traded and their market price is equal to 93% of its face value. The debentures have a total book value of $50 000 000 and the current yield to maturity of corporate debenture is 12% per annum. The risk-free rate is 8.50% and the market risk premium is 5.20%. Market analysts estimated that the Whitehorse Book Company has a beta of 0.90. The corporate tax rate is 30%. What is the company's weighted average cost of capital (WACC) under the classical tax system?

Answer rating: 100% (QA)

The WACC is computed as shown below cost of debt x 1 tax rate x weight of debt cost of equit... View the full answer