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WACC

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Clark Communications has a capital structure that consists of 70% common stock and 30% long-term debt. In order to calculate Clark's WACC, an analyst has accumulated the following information:

· The company currently has 15-year, 8% annual coupon bonds that have a face value of $1,000 and sell for $1,075.
· The risk-free rate is 5%.
· The market risk premium is 4%.
· The beta on Clark's common stock is 1.1.
· The company's retained earnings are sufficient so that they do not have to issue any new common stock to fund capital projects.
· The company's tax rate is 38%.

Given this information, what is Clark's WACC?

A 5.93%
B 7.40%
C 7.91%
D 8.07%
E 8.73%

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Get the detail answer with attachment. In short the answer is (C) 7.91%.

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Given that,
Weight of common ...

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Jayant Kumar, MBA
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  • MBA, Indian Institute of Finance
  • Bsc, Madras University
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