Question

# Omega Corporation has 10.5 million shares outstanding, now trading at $60 per share. The firm has estimated the

expected rate of return to shareholders at about 10%. It has also issued $225 million of long-term bonds at an interest rate of 7%. It pays tax at a marginal rate of 34%.

**a. **What is Omega’s after-tax WACC?** ****(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)**

After-tax WACC %

**b. **What would WACC be if Omega used no debt at all? (Hint: For this problem you can assume that the firm’s overall beta [βA] is not affected by its capital structure or by the taxes saved because debt interest is tax-deductible.) **(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)**

WACC %

Managerial Accounting