Question
Firm XYZ has7million shares outstanding, with a book value of $10per share and a market price of $25per share. In addition, the firm has150,000bonds outstanding,
Firm XYZ has 7 million shares outstanding, with a book value of $10 per share and a market price of $25 per share. In addition, the firm has 150,000 bonds outstanding, matured in 10 years, with a par value of $1,000, selling at 96% of par. Bonds pay semiannual coupons of 4.20%. The firm's beta is 1.05, the risk-free rate is 3.75%, and the market risk premium is 7.20%. The tax rate is 21%.
What is the firm's cost of capital?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the cost of capital we can use the weighted average cost of capital WACC formula WACC EVRe DVRd1 Tc Where E is the market value of equity ...
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
Corporate Finance
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
13th International Edition
1265533199, 978-1265533199
