Question
Debt: 10,000 semi-annual bonds with a coupon rate of 5.95% and a yield to maturity of 5% APR, a face value of $1000 and currently
Debt: 10,000 semi-annual bonds with a coupon rate of 5.95% and a yield to maturity of 5% APR, a face value of $1000 and currently trades at 110% of par; the bonds have 15 years to maturity. The book value of debt is $80 million.
Common stock: 10 million shares outstanding currently trading at $16 per share, the beta of the stock is 1.1, and the book value of equity is $80 million. {Note: the company only has common stocks, it does not have any preferred stocks.}
Market: The U.S. Treasury bill is yielding 4% and the market risk premium is 8%. The corporate tax rate is 35%.
1. What is the weight of debt (Wd)? Hint: the price of the bond is how it currently trades on its par value (face value). Answer in %, and round to 2 decimals.
Answer is not 35.48
2. What is the weight of equity (We)? Answer in %, and round to 2 decimals.
answer is not 64.52 or 65%
3. What is the company's WACC? Answer in %, and round to 2 decimals.
answer is not 9.41
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