Question
Running Shoe, Inc has 2 million shares of stock outstanding. It currently sells for $12.50 a share. The firm's debt is publicly traded and was
Running Shoe, Inc has 2 million shares of stock outstanding. It currently sells for $12.50 a share. The firm's debt is publicly traded and was recently quoted at 90% face value. It has a total face value of $10M and is currently priced to yield 8%. Risk free rate = 2%. Market risk premium = 8%. Beta = 1.2. Tax rate = 40%.
What is the cost of equity? I got this one by taking Risk free rate + Market rate * Beta = 11.6%
What is the percentage of equity used by the firm? I think I need to divide total debts by total assets? But I know the answer is 73.53% and I'm not able to get to that answer, so I think I'm calculating debts and assets wrong.
What is the WACC? I'm having trouble identifying the weights and required rates of return in the equations to get to the answer, which I know is 9.8%
Thanks!!
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