Firm weighted average cost of capital

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A levered firm has 500,000 shares outstanding with a stock price of $42.50 per share. The beta of the firm's equity is 1.12 and the market risk premium is 7 percent. The firm also has 20,000 bonds outstanding that are selling at their par value of $1000. The firm can borrow at the risk-free rate of 5 percent and faces a tax rate of 20 percent. Using the security market line to estimate the firm's cost of equity, what is the firm's weighted average cost of capital?

Enter your answer as a decimal number, rounded to four decimal places (E.g., 0.1455).

Reference no: EM133119038

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