Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Assume that CGT company has long term debt/equity ratio of 0.5 . I ts $1,000 par value, 20-year, 7.25% bonds with semiannual payments are

1. Assume that CGT company has long term debt/equity ratio of 0.5. Its $1,000 par value, 20-year, 7.25% bonds with semiannual payments are selling for $875.00. The beta is 1.25, the yield on a 20-year Treasury bond is 5.50%. The required return on the stock market is 11.50%. The firm's tax rate is 40%.
1) What is the best estimate of the after-tax cost of debt?
2) Based on the CAPM, what is the firm's cost of common stock?
3) What is the best estimate of the firm's WACC?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Venture Capital Investment Process

Authors: Darek Klonowski

1st Edition

0230612881, 023011007X, 9780230612884, 9780230110076

More Books

Students also viewed these Finance questions