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XYZ, Inc, is considered as being above average risk and so its market equity beta is 1
XYZ, Inc, is considered as being above average risk and so its market equity beta is 1.8. Currently, the default free rate on long term govt. securities is 4% and the market risk premium is 9%. Furthermore, XYZ has $2 million of interest bearing debt outstanding and the market value of equity is estimated at $3 million. Its income tax rate is 40% and its pre-tax interest rate on borrowed funds is 8%. XYZ is contemplating implementing a revised capital structure consisting of 60% debt and 40% equity. What will be XYZ's WACC after the new capital structure is in place?
A. 14.3% B. 11.3% C. 12.3% D. 13.3%
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