Question
BigCo Inc. currently has a bond issue outstanding with 8 years to maturity, a face value of $1,000 and a coupon rate of 7.00% (paid
BigCo Inc. currently has a bond issue outstanding with 8 years to maturity, a face value of $1,000 and a coupon rate of 7.00% (paid annually). The bond currently sells for $1,062. BigCos common stock has a beta of 0.85, and currently sells for $56/share. Treasury bills yield 2.50% and the expected rate of return on the market is 9%. BigCos marginal tax rate is 21%. BigCos total bond debt has a face value of $8,000,000 and there are 400,000 shares of stock outstanding. You must show calculator keystrokes or equations to receive any credit. No points for the final answer only.
Estimate BigCos nominal (pre-tax) cost of debt:
Estimate BigCos cost of equity:
What is BigCos WACC?
If BigCo has a new project that costs $2.5 million today and will return a one-time cash flow of $4.2 million in one year. If this project is similarly risky as the existing firms assets, what is the projects NPV?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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