The Oval Bearing Corp manufactures ball bearings. Oval Bearing Corp is

The Oval Bearing Corp manufactures ball bearings. Oval Bearing Corp is all equity financed and its shareholders require a return of 8%. Elliptical Bearing Inc is also a manufacturer of ball bearings.

Elliptical has 30% debt in its capital structure (debt-to-equity is 0.4286), and its cost of debt is 4%. What is Elliptical’s WACC? Assume that the tax rate is 0%.
A) 6.8%
B) 7.3%
C) 8.0%
D) 8.5%
E) 9.7%

ANSWER

C