Question: In 2 0 1 7 , Tesla issued a bond for the first time. It issued a 1 0 - year bond with $ 1

In 2017, Tesla issued a bond for the first time. It issued a 10-year bond with $1.8B in face value, offering a 5.3% coupon rate (annual). The bond was issued at par value (i.e., price =100). Now, due to the improvement of the firms financial status, the yield has dropped to 4.53%.(1) What is the current price of this bond? Assume there are 5 years to maturity, and Tesla has just made the last coupon payment. (2) At the time of issuance, Teslas stock price was $350, and there were 167M shares outstanding. Beta was 1.4. The risk-free rate was 1%, and market risk premium was 7%. Assume a tax rate of 34% for Tesla, and it had enough earnings to benefit from tax shield. What was its after-tax WACC before and after the bond issuance in 2017?(3) If, in 2017, Tesla had changed the issue size to $3B (also 5.3% coupon rate, sold at par) instead of $1.8B, what would be the new cost of equity right after issuance?

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