You are tasked with estimating the weighted average cost of capital for Lockheed Martin (ticker=LMT). LMT has a levered beta of 0.61. LMT’s debt to equity ratio is 0.08. LMT’s pre-tax cost of debt is 4%. Assume a risk free rate of 3%, a market risk premium of 5%, and a corporate tax rate of 35%.
Estimate LMT’s WACC
Suppose the corporate tax rate falls to 20%. Estimate the impact on the WACC.