Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Company A currently has a stock price $20/per share, with outstanding shares 2 Mil shares. It also has outstanding debt of 20 Mil. Tax rate

Company A currently has a stock price $20/per share, with outstanding shares 2 Mil shares. It also has outstanding debt of 20 Mil. Tax rate is 30%. Its annual bond with 10 year maturity date has a price now $886, par value $1000 and coupon rate is 7%. It has a beta of risk 1.2, risk free rate 4% and market index return 9%.

Please answer following parts with above information

Part1) what is the cost of debt before tax?

Part 2) what is the after tax cost of debt?

Part 3) how much is total equity?

Part 4) what is the cost of equity?

Part5) what is the weight of debt?

Part 6) what is the WACC?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Business Analysis And Valuation Using Financial Statements

Authors: Krishna G Palepu, Paul M Healy

4th Edition

032430286X, 9780324302868

More Books

Students also viewed these Finance questions

Question

Explain all drawbacks of application procedure.

Answered: 1 week ago

Question

=+g. Does it deliver one, instantly understandable message?

Answered: 1 week ago

Question

=+e. Does it entertain, inform and/or engage the reader?

Answered: 1 week ago

Question

=+h. Do all of the related materials project one cohesive message?

Answered: 1 week ago