Calculate weighted average cost of capital for combined firm

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Reference no: EM133617002

Problem

Pre-acquisition data for Global, INC which is acquiring Regional, INC a targeting a merger transaction are given below.

	Global, INC	Regional, INC
Market Capitalization (millions)	4000	500
Beta	0.9	1.3
Total Debt	1200	250

In addition, the cost of borrowing for the combined firm is expected to be 200 basis points above treasury. The combined firm is expected to maintain a target debt-to-equity ratio of 30%. The treasury bond rate is 3% and market risk premium is 5.5%. Assuming a tax rate of 20% for all firms, calculate the weighted average cost of capital for the combined firm.

Reference no: EM133617002

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