What is the approximate after-tax weighted average cost

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Question - Droz's Hiking Gear Ltd has found that its equity capital shares have a beta equal to 1.5 while the risk-free return is 8% and the expected return on the market is 14%. It also has 7-year maturity $1 000 par value bonds outstanding with a current price of $767.03. The bonds have an annual coupon rate of 7%.

Required - If the company is financed with $120 million of ordinary shares (market value) and $80 million of debt, then what is the approximate after-tax weighted average cost of capital for Droz's if it is subject to a 35% company tax rate (round to the nearest 0.5%)?

a. 13.35%

b. 11.88%

c. 11.76%

d. 10.2%

Reference no: EM132755281

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