Question - Trojan Services' CFO is interested in estimating the company's WACC and has collected the following information:
The company has bonds outstanding that mature in 26 years with an annual coupon of 7.5%. The bonds have a face value of $1,000 and sell in the market today for $920.
The risk free rate is 6%.
The market risk premium is 5%.
The stock's beta is 1.2.
The company's tax rate is 40%.
The company's target capital structure consists of 70% and 30% debt.
The company uses the CAPM to estimate the cost of equity and does not include flotation costs as part of its cost of capital. What is Trojan's WACC?
A. 10.87%
B. 9.39%
C. 9.89%
D. 9.75%