A fi rm has a capital structure containing 60 percent debt and 40 percent common stock equity. Its outstanding bonds offer investors a 6.5 percent yield-to-maturity. The risk-free rate currently...

A fi rm has a capital structure containing 60 percent debt and 40 percent common stock equity. Its outstanding bonds offer investors a 6.5 percent yield-to-maturity. The risk-free rate currently equals 5 percent, and the expected risk premium on the market portfolio equals 6 percent. The fi rm’s common stock beta is 1.20. a. What is the fi rm’s required return on equity? b. Ignoring taxes, use your fi nding in part (a) to calculate the fi rm’s WACC. c. Assuming a 40 percent marginal tax rate, recalculate the fi rm’s WACC found in part (b). d. Compare and contrast the values for the fi rm’s WACC found in parts (b) and (c).