Question
A company has $100 million book value of debt. You look on Morningstar FINRA and you see that there is a single bond issuance, trading
A company has $100 million book value of debt. You look on Morningstar FINRA and you see that there is a single bond issuance, trading at $110 (on a face value of $100). It is a 10 year bond, with 4.5% annual coupon. The market capitalization of this company is $140 million, it's beta is 0.75, the risk free rate is 2% and the market risk premium is 6%.
a) What is the cost of equity capital?
b) What is the weight of equity in this firm's capital structure?
c) What is the weight of debt in this firm?
d) Assume the firm has a tax rate of 20%, what is the WACC of the firm?
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