Omega Corporation has 11.1 million shares outstanding, now trading at $54 per share. The firm has estimated the expected rate of return to shareholders at about 10%. It has also issued long-term bonds at an interest rate of 8%. It pays tax at a marginal rate of 30%. Assume a $195 million debt issuance.
a. What is Omega's after-tax WACC?
b. 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.)
c. What is Omega's after-tax WACC?