If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company

Question:

If Wild Widgets, Inc., were an all-equity company, it would have a beta of .95. The company has a target debt-equity ratio of .40. The expected return on the market portfolio is 11 percent and Treasury bills currently yield 3.5 percent. The company has one bond issue outstanding that matures in 15 years and has a coupon rate of 6.5 percent. The bond currently sells for $1,080. The corporate tax rate is 21 percent.

a. What is the company’s cost of debt?

b. What is the company’s cost of equity?

c. What is the company’s weighted average cost of capital?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

Fantastic news! We've Found the answer you've been seeking!