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Homework answers / question archive / 1) Rumolt Motors has 30 million shares outstanding with a price of $15 per share
1) Rumolt Motors has 30 million shares outstanding with a price of $15 per share. In addition, Rumolt has issued bonds with a total current market value of $150 million. Suppose Rumolt's equity cost of capital is 10%, and its debt cost of capital is 5%.
a) What is Rumolt's pretax WACC?
b) If the corporate tax rate is 35%, what is its after-tax WACC?
2) An investor has a $200,000 stock portfolio. $150,000 is invested in a stock with a beta of 0.8 and the remainder is invested in a stock with a beta of 1.2. These are the only two investments in his portfolio. What is his portfolio's beta?
