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Epson has one bond outstanding with a yield to maturity of 6% and a coupon rate of 8%. The company has no preferred stock. Epson's
Epson has one bond outstanding with a yield to maturity of 6% and a coupon rate of 8%. The company has no preferred stock. Epson's beta is 1, the risk-free rate is 1.5% and the expected market risk premium is 6%.
Epson has a target debt/equity ratio of 0.6 and a marginal tax rate of 34%.
a. What is Epson's (pre-tax) cost of debt?
b. What is Epson's cost of equity?
c. What is Epson's capital structure weight for equity, i.e., the fraction of long-term capital provided by equity?
d. What is Epson's weighted average cost of capital?
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