Question
Please Show work You have been asked to analyze Stevens Steel, a small steel company. The company has supplied you with the following information: There
Please Show work
You have been asked to analyze Stevens Steel, a small steel company. The company has supplied you with the following information:
There are 100 million shares outstanding, trading at $ 10 a share
The firm has debt outstanding of $ 500 million, in market value terms.
The beta for the firm currently is 1.04, the risk free rate is 5% and the market risk premium is 5.5%.
The firms current bond rating is A; the default spread for A rated bonds is 1.5%.
The marginal tax rate is 40%.
Estimate the current cost of capital for Stevens Steel.
a.
8.99%
b.
6.55%
c.
3.33%
d.
8.45%
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