Question
2- A company went public by issuing 500.000 shares of common stock at 10 $ per share. The shares are currently traded with a 40%
2- A company went public by issuing 500.000 shares of common stock at 10 $ per share. The shares are currently traded with a 40% premium. Current benchmark government bond rate is 8%, market return is 20% and the company has an unlevered beta coefficient of 0.26. At the beginning of the year, it issued 50,000 bonds of 1,000 $ par paying 10% coupon annually maturing in 20 years. The yield to maturity is always 10,61%. The bonds are currently trading with 80 $ discount. If the tax rate is 20%, what would be the approximate weighted average cost of capital (WACC) using the market values of debt and equity?
- 11,00%
- 8,84%
- 10.58%
- 9.28%
BONUS QUESTION - Refer to Question 2 above. What would be the WACC if you used book values of debt and equity? SHOW YOUR CALCULATIONS.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started