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What will be xyz wacc after the new capital structure

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Problem 1: XYZ, Inc. is considered as being above average risk and so its market equity beta is 1.8. Currently, the default free rate on long term govt. securities is 4% and the market risk premium is 9%. Furthermore, XYZ has $2 million of interest bearing debt outstanding and the market value of equity is estimated at $3 million. Its income tax rate is 40% and its pre-tax interest rate on borrowed funds is 8%. XYZ is contemplating implementing a revised capital structure consisting of 60% debt and 40% equity. What will be XYZ's WACC after the new capital structure is in place?

A. 14.3%
B. 11.3%
C. 12.3%
D. 13.3%

Reference no: EM132793983

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