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Please type answers and show work if possible. Thanks 1) A firm has 10,000,000 shares of common stock outstanding, each with a market price of
Please type answers and show work if possible. Thanks
1) A firm has 10,000,000 shares of common stock outstanding, each with a market price of $15.00 per share. It has 80,000 bonds outstanding, each selling for $1020. The bonds mature in 15 years, have a coupon rate of 9%, and pay coupons semi-annually. The firm's equity has a beta of 1.9, and the expected market return is 10%. The tax rate is 30% and the risk-free rate is 4%.
- What is the total market value of common stocks?
- What is the total market value of bonds?
- What is the cost of equity?
- What is the cost of debt?
- What is the cost of capital for the firm?
- How would a corporate financial manager use the cost of capital that you calculated in part e)? (Be specific)
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