Here is some information about Stokenchurch Inc Beta of comm

Here is some information about Stokenchurch Inc.: Beta of common stock = 2.1 Treasury bill rate = 4% Market risk premium = 7.4% Yield to maturity on long-term debt = 9% Book value of equity = $430 million Market value of equity = $860 million Long-term debt outstanding = $860 million Corporate tax rate = 35% What is the company’s WACC?

Solution

Cost of Equity=Ke=4+2.1*7.4=19.54

WACC=860/(860+860) *19.54 +860/(860+860) *9*(1-0.35)=0.5*19.54 +0.5*0.65*9=12.695 %