Keep at least five decimal places in all your intermediate calculations. Round y
ID: 2721322 • Letter: K
Question
Keep at least five decimal places in all your intermediate calculations. Round your final answer to at least three decimal places.
Proplan shares are currently selling at $69.25 each. The yield on Proplan debt is 4% and the firm’s beta is 0.70. The T-bill rate is 4% and the expected return on the market portfolio is 9%. Proplan pays a combines federal and state tax rate of 35%. The company’s target capital structure is 25% debt and 75% common equity. Proplan’s cost of debt is 2.6% and the company’s cost of equity is 7.5%. What is the WACC for Proplan?
Explanation / Answer
WACC for Proplan = Weighted after-tax cost of debt + Weighted cost of equity = 0.25 x 0.026 x ( 1-0.35) + 0.75 x 0.075 = 0.004225 + 0.05625 = 6.0475 %
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