Question
: A company has a book value of equity of $1 billion. There are 150 million shares, trading at $12/share. The average unlevered beta of
:
A company has a book value of equity of $1 billion. There are 150 million shares, trading at $12/share. The average unlevered beta of other companies in the same business is 1.20.
The company has debt outstanding of $1 billion, with 5 years left to maturity and currently has a CCC bond rating and has a default spread of 7% over the risk-free rate.
The risk-free rate is 3%, the equity risk premium is 5% and the marginal tax rate for all companies is 40%.
QUESTION: ESTIMATE THE COST OF CAPITAL (two decimals)
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Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
