Company A has calculated its WACC using the following assump…
Company A has calculated its WACC using the following assumptions: 90% equity funding, 10% debt funding, 4.0% risk free rate, a levered beta of 1.4, a 6% equity risk premium, a 7% average interest expense and a 25% tax rate. The CFO is considering a significant change in Company A’s capital structure. She is considering a shift to 50% equity funding, 50% debt funding (as the new, long term intended capital structure for Company A). Her bankers have told her that the new average interest rate for the debt would be 10%. What is the difference between the original WACC and the new WACC based on the CFO’s proposed plan?