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(10 marks) Your firm is financed as follows. It has 200,000 common shares issued and outstanding, which were priced at $50 at the close of
(10 marks) Your firm is financed as follows. It has 200,000 common shares issued and outstanding, which were priced at $50 at the close of trading this afternoon. The expected return on the market is 8%, 91- day Government of Canada treasury bills are yielding 1.0%, and your common stock's Beta is 1.5. Bondholders have lent your company $8,000,000 (face value) in bonds with a 6% coupon, payable semi- annually. The bonds now have a yield-to-maturity of 5% (compounded semi-annually), and have a market value of $9,000,000. Your firm has a marginal corporate tax rate of 40%. a) What is the market value of our common shares? (1 mark) b) What is the total market value of your firm? (1 mark) c) What proportion of your firm is financed with common stock? (1 mark) d) What proportion of your firm is financed with long-term debt? (1 mark) e) What is the expected return on your common stock (cost of equity)? (3 marks) f) What is your firm's weighted average cost of capital
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