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Maggies Acting Company has 7,000,000 shares of stock outstanding at a price of $60/share and a Beta of 1. They have two bond issues: 1)
- Maggies Acting Company has 7,000,000 shares of stock outstanding at a price of $60/share and a Beta of 1. They have two bond issues: 1) $25,000,000 of Face Value maturing in 10 years. The price of one bond is 97, or 97% of Par. 2) $40,000,000 of Face Value maturing in 5 years. The price of one bond is 102, or 102% of par.
The Risk-free rate is 3% and the Expected Return on the Market is 10%.
Companies with a similar risk profile to Maggies Acting Company have a yield spread of 1.0% for 5-year bonds and 1.5% for 10-year bonds.
- Cost of debt 1?
- Cost of debt 2?
- Weighted average cost of debt which is Rd?
- (Wd1 * Rd1) + (Wd2 * Rd2)
- What is the cost of equity (Re)?
- What is the market value of the equity (MVe)?
- What is the value of the firm (MVd + MVe)
- What is the weight of debt (Wd)?
- What is the weight of equity (We)?
- What is the companys WACC?
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