After-tax WACC Omega Corporati

After-tax WACC Omega Corporation has 10 million shares outstanding, now trading at $55 per share. The firm has estimated the expected rate of return to shareholders at about 12%. It has also issued long-term bonds at an interest rate of 7% and has a debt value of $200 million. It pays tax at a marginal rate of 21%.

a. What is Omega’s after-tax WACC?

b. How much higher 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.)

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