Burlees Inc.’s CFO has collected the following information to calculate its WACC:
The company’s capital structure consists of 60% debt and 40% common stock.
The company has 20-year, 12% annual coupon bonds that have a face value of $1,000 and sell for $1,200.
The company uses the CAPM to calculate the cost of common stock. Currently, the risk-free rate is 3% and the market risk premium is 5%. The company’s common stock has a beta of 2.
The company’s tax rate is 40%.
What is the company’s weighted average cost of capital (WACC)?