Question
1.Percy Motors gas a target capital structure of 40% debt and 60% common equity. The yield to maturity on the company's outstanding bond is 9%,
1.Percy Motors gas a target capital structure of 40% debt and 60% common equity. The yield to
maturity on the company's outstanding bond is 9%, and its tax rate is 40%. Percy's CFO estimates
that the company's WACC is 9.96%. What is Percy's cost of common equity?
2.Revive Co. has outstanding 15-year non-callable bonds with a face value of $1000. These bonds
have a current market price of $1,136.50 and an annual coupon rate of 12%. The company faces a
tax rate of 35%. If the company wants to issue new debt, what would be the reasonable estimate for
its after-tax cost of debt?
Step by Step Solution
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Step: 1
Part 1 Cost of common equity Given the information we can use the following formu...
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Financial management theory and practice
Authors: Eugene F. Brigham and Michael C. Ehrhardt
13th edition
1439078106, 111197375X, 9781439078105, 9781111973759, 978-1439078099
