Question
Corella is a mid- cap manufacturing company. Corrella currently has bonds with face value of 15 million which pay a. hald coupon rate of 8%
Corella is a mid- cap manufacturing company. Corrella currently has bonds with face value of 15 million which pay a. hald coupon rate of 8% p.a and will mature in four years. The market yeild on these bonds is currently 8 % p.a.
Corella also has 10 million ordinary shares on the market currently trading at $2.75 per share. The beta coefficient for the ordinary share is 1.2, return on the market is estimated to be 16% p.a and the risk free rate is 4%
The company tax rate is 30% (please include all workings)
a. Calculate the after tax cost of the company's bond and share
b. calculate the weighted average cost capital (WACC) of corella.
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