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Estimate the cost of equity

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Reference no: EM132813725

Malitz Inc. recently hired you as a consultant to estimate the company's WACC. You have obtained the following information.

- Malitz's noncallable bonds mature in 27 years, have an 11.00% annual coupon, a par value of $1,000, and a market price of $1,250.

- The company's tax rate is 30%.

- The risk-free rate is 2.50%, the market risk premium is 7.50%, and the stock's beta is 1.50.

- The target capital structure consists of 40% debt and the balance as common equity. Malitz uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. What is its WACC?

Reference no: EM132813725

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