Evenly split between debt and common equity

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Reference no: EM132056166

Firm Z has outstanding bonds with a 5% coupon rate and 7% yield to maturity. The firm’s managers believe that they can raise new debt at a similar rate. The firm’s tax-rate is 30%. Also, the firm’s beta is 1.5, the return on the market is 8% and the risk-free rate is 3%. If the firm’s target capital structure is evenly split between debt and common equity but no preferred stock, what is the firm’s weighted average cost of capital (wacc)?

Reference no: EM132056166

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