Cyberdyne Systems is a military/defense products company. Cyberdyne Sy

Cyberdyne Systems is a military/defense products company. Cyberdyne Systems is all equity financed. Cyberdyne has 200 million shares outstanding which trade for $20 per share. Cyberdyne’s shareholders require a return of 10%.

Omni Defense Products Inc is also a military/defense products company. It’s shares are trading for $35 per share. Omni has 100 million shares outstanding. Omni has debt worth $3 billion. Omni’s debt is priced to yield 6.5%.
What is the required return of Omni’s shareholders? (Assume that the tax rate is 0%.)
A) 12.33%
B) 12.50%
C) 12.63%
D) 13.00%
E) 13.50%

ANSWER

D