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Omega Corporation has 11.1 million shares outstanding, now trading at $54 per share. The firm has estimated the expected rate of return to shareholders at about 10%. It has also issued long-term bonds at an interest rate of 8%. It pays tax at a marginal rate of 30%. Assume a $195 million debt issuance.
a. What is Omega's after-tax WACC?
b. How much higher would WACC be if Omega used no debt at all? (Hint:For this problem you can assume that the firm's overall beta [ßA] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.)
c. What is Omega's after-tax WACC?
McGonnigal has outstanding 250,000 shares of $10 (dividend) preferred stock and 1 million shares of common stock ($1 par value). McGonnigal's average tax rate is 35 percent, and its marginal rate is 40 percent.
How determine the NPV by using required rate of return when there are no given cash flows.
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