Find company current weighted average cost of capital

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Question: GenCorp, an automorive parts manufacturer, currently has $25 million in outstanding debt and has 10 million shares outstanding. The book value per share is $10, while the market value is $ 25. The company is currently rated A, its bonds have a yield to maturity of 10%, and the current beta of the stock is 1.06. The six-month T.Bill rate is 8% now, and the company's tax is 40%.

a. What is the company's current weighted average cost of capital?

b. The company is considering a repurchase of 4 million shares at $25 per share with new debt. It is estimated that this will push the company's rating down to a B (with a yield to maturity of 13%). What will the company's weighted average cost of capital be after the stock repurchase?

Reference no: EM131690148

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