Question
5 years ago, Pigeon Percussion sold 220 semi-annual, 15-year (at issuance) bonds for $1,100 each. The Yield to Maturity on these bonds was 8.0%. Today,
5 years ago, Pigeon Percussion sold 220 semi-annual, 15-year (at issuance) bonds for $1,100 each. The Yield to Maturity on these bonds was 8.0%. Today, these 220 bonds are selling for $927 each. They are Pigeons only debt. Pigeon faces a 10% corporate tax rate. Pigeon stock has a beta of 1.9. The current yield on US Treasury bonds is 0.8% and the market risk premium is 8.1%. Pigeon has 79,606 shares outstanding. The current share price is $10. Pigeon faces a 10% corporate tax rate. A. What was the coupon rate on Pigeons bonds when they were issued? B. What is the coupon rate on Pigeons bonds today? C. What is the YTM on Pigeons bonds today? D. What is Pigeons cost of debt (before- and after-tax)? E. What is Pigeons cost of equity? F. What are the capital structure weights on debt and equity? G. What is Pigeons WACC?
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