Plant Palace has one million shares of common stock outstanding wit...

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Plant Palace has one million shares of common stock outstanding with market price of $12 per share. The firm's outstanding bonds have a total face value of $5 million, 10 years to maturity, and a coupon rate of 10 %. They sell for $ 985. The risk free rate is 7 %, and the analyst's expected return for the market is 14 %. The stock has a beta of 1.2, and the firm is in the 40 % tax bracket. Find the WACC.

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Cost of equity = Risk free rate + Beta * (Market return – Risk free rate) = 7% + 1.2 * (14% - 7%) = 15.4%
Market value of equity = 1 million * $12 = $ 12 million...

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