Problem:
Richardson Electronics has issued long-term bonds with a total market value of $50 million, and these bonds currently earn an expected return (rd) of 9 percent. Additionally, Richardson has 4 million shares of common stock outstanding, with each share trading for $10 (P0 = $10). At this price per share the stocks offer an expected return of 17 percent.
What is the weighted average cost of capital (WACC) for Richardson Electronics based on market-value weights? Assume that the firm pays a tax rate of 40% (so that t = 0.40).