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Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40
Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (r) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC) Suppose Enviro-tech is attempting to estimate its cost of capital (WACC). The company has 500,000 shares of stock outstanding that currently sells for $40 per share. In addition, the company has 15,000 bonds outstanding with 15 years left until maturity that pay a $1,000 par value and an annual coupon of 5.0%. Management believes these bonds would sell for $875.00 in today's market. The company's beta is 0.85, the risk-free rate is 3% and the market risk premium is 7%. The tax rate is 25%. a. What is the total market value of the company's stock (MVE)? b. What is the total market value of the company's bonds (MVD)? c. What is the total market value of the firm's financial contacts (total invested capital)? d. Estimate the percentage of the company financed with debt (wd) e. Estimate the percentage of the company financed with equity (ws) f. Estimate the firm's cost of debt (rd) g. Estimate the firm's cost of equity (re) using the CAPM. h. Compute an estimate of the firm's weighted average cost of capital (WACC)
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