Question
Assume that you are the CFO of Microsoft Company and you were asked to estimate the cost of capital. Microsoft has 1500 bonds that now
Assume that you are the CFO of Microsoft Company and you were asked to estimate the cost of capital. Microsoft has 1500 bonds that now has 20 years to maturity and a 7.00% annual coupon. The bond currently sells for $925 and the companys tax rate is 30%. Moreover, Microsoft has 60,000 common stock ($10 par value) and the risk premium over its own debt cost is 5.00% and the the yield on a Treasury bond is 4%.
1- Calculate the best estimate of the cost of debt and the cost of equity?
2- In your opinion, what is the best estimate of the firm's WACC, justify your answer?
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