Business, 06.05.2020 04:44, sydneip2394

A firm's target capital structure is 40 percent debt and 60 percent common equity. Its bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. The firm's marginal tax rate is 20 percent. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium approach to find the cost of retained earnings (note that retained earnings is internally generated equity). The firm uses no preferred stock.
Required:
1. Calculate the firm's weighted average cost of capital (WACC).

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A firm's target capital structure is 40 percent debt and 60 percent common equity. Its bonds have a...