Omega Corporation has 11.2 million shares outstanding, now trading at $53 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds at an interest rate of 9%. It pays tax at a marginal rate of 35%. Assume a $190 million debt issuance.
What is Omega’s after-tax WACC? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
How much higher would WACC be if Omega used no debt at all? (Hint: For this problem you can assume that the firm’s overall beta [ßA] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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