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 percent.,It has also issued long-term bonds at an interest rate of 7 percent. It pays tax at a marginal,rate of 35 percent.,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 (A) is not affected by its capital,structure or the taxes saved because debt interest is tax-deductible.
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