Solution-Estimated the expected rate of return to

Estimated the expected rate of return to shareholders

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Omega Corporation has 10.4 million shares outstanding, now trading at $59 per share. The firm has estimated the expected rate of return to shareholders at about 11%. It has also issued $220 million of long-term bonds at an interest rate of 6%. It pays tax at a marginal rate of 35%.

a. What is Omega's after-tax WACC? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

b. What would WACC be if Omega used no debt at all? (Hint: For this problem you can assume that the firm's overall beta [β_A] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.) (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

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Estimated the expected rate of return to shareholders

Reference no: EM131725595

Reference no: EM131725595

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