The total market value of Okefenokee Real Estate Company's equity is $6 million, and the total value of its debt is $4 million. The treasurer estimates that the beta of the stock currently is 1.2 and that the expected risk premium on the market is 10%. The Treasury bill rate is 4%, and investors believe that Okefenokee's debt is essentially free of default risk.
Inputs:
Market value of equity : $6 million
Market value of debt : $4 million
Beta : 1.20
Market risk premium : 10%
T-Bill rate : 4%
Tax rate : 40%
New beta : 1.40
Estimate the WACC.