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Intro Epson has one bond outstanding with a yield to maturity of 6% and a coupon rate of 8%. The company has no preferred stock.
Intro 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 1.2, the risk-free rate is 2.3% 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%. Part 1 18 Attempt 1/10 for 10 pts. What is Epson's (pre-tax) cost of debt? 6.0000% Correct Pre-tax cost of debt equals the yield to maturity on the single bond, or 0.06. Part 2 B Attempt 1/10 for 10 pts. What is Epson's cost of equity? 9.5000% Correct The cost of equity is the stock return that shareholders require. We can use the CAPM to find it: Pe = rf + B. MRP = 0.023 + 1.2(0.06) = 0.095 Part 3 18 Attempt 3/10 for 8 pts. What is Epson's capital structure weight for equity, i.e., the fraction of long-term capital provided by equity? 3+ decima Submit Part 4 10 Attempt 2/10 for 9 pts. What is Epson's weighted average cost of capital? 4+ decima Submit
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