Question
The company XYZ has a stock price of $10 and 100,000 outstanding shares. The stock beta is 1.5. The market value of XYZs debt is
The company XYZ has a stock price of $10 and 100,000 outstanding shares. The stock beta is 1.5. The market value of XYZs debt is $600,000. The debt consists of bonds with an annual yield to maturity (YTM) of 7%. The probability of default is 5% and in case of default, the expected loss rate is 50%. The corporate tax rate is 20%. In addition, assume that the expected market risk premium is 5% and that the risk-free interest rate is 0.5% per year
Question:
What is the cost of equity, debt and what is the WACC?
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Financial Accounting and Reporting
Authors: Barry Elliott, Jamie Elliott
14th Edition
978-0273744535, 273744445, 273744534, 978-0273744443
