Uses the capm to estimate the cost of common stock

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Reference no: EM132017619

cCoggins, McKinney, and Parker (Ticker symbol: CMP, NYSE) recently hired the presitigious firm of Chavarria and Lulek to estimate the company’s WACC. CFO Lauren Catherine LaVigne, asked her junior assistants, Klosek and Bradford, to collect the necessary information for this calculation. Klosek and Bradford, eager to impress, collected the following information. (1) The firm's noncallable bonds mature in 20 years, have an 8.00% annual coupon, a par value of $1,000, and a market price of $1,050.00. (2) The company’s tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock’s beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of common stock, and it does not expect to issue any new shares. What is its WACC?

Reference no: EM132017619

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