Spread between treasury securities and the yield on debt

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Reference no: EM13873387

In December 1995 Boise Cascade’s stock had a beta of 0.95. The Treasury bill rate at the time was 5.8% and the Treasury bond rate was 6.4%. The firm had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate tax rate was 36%; the market risk premium is 5.5%.

Assume the term structure of interest gives a 200 bp (basis point – a basis point is 1/100 of a %) spread between Treasury securities and the yield on debt with the same rating as Boise Cascade. Calculate the firm’s WACC.

Reference no: EM13873387

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