Question
Based on the book values in the balance sheet of the company presented below, answer the following questions: Assets Liabilities and Shareholders Equity Asset (book
Based on the book values in the balance sheet of the company presented below, answer the following questions:
Assets | Liabilities and Shareholders Equity |
Asset (book value) $ 75 | Debt $ 25 |
Equity $ 50 | |
Total $ 75 | Total $ 75 |
a. What is the book value of the company?
b. Calculate debt (D/V) and equity (E/V) ratios of the company.
c. Suppose the cost of equity and debt are 15% and 10%, respectively. What is the cost of capital for the company?
d. Suppose a company has 6 million of shares outstanding each traded for $4 and the market value of its debt securities is now 20% below its book value. If companys shareholders demand 20% expected rate of return and bonds yield 14% now and corporate tax rate is 25%, what is the WACC of the company?
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