Estimating the weighted average cost of capital

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You are tasked with estimating the weighted average cost of capital for Lockheed Martin (ticker=LMT). LMT has a levered beta of 0.61. LMT’s debt to equity ratio is 0.08. LMT’s pre-tax cost of debt is 4%. Assume a risk free rate of 3%, a market risk premium of 5%, and a corporate tax rate of 35%.

Estimate LMT’s WACC

Suppose the corporate tax rate falls to 20%. Estimate the impact on the WACC.

Reference no: EM131552826

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