Question
The company you work for wants you to estimate the company's WACC; but before you do so you need to estimate the cost of debt
The company you work for wants you to estimate the company's WACC; but before you do so you need to estimate the cost of debt & equity. you have obtained the following information 1. the firms non callable bonds mature in 20 years have an 7% annual coupon, a par value $1,000 and market price of $1,255 2. Company was rate is 35% 3. the risk free rate is 4.5% 4. market risk premium is 5.5% 5. stocks beta is 1.2 6. the target capital structure consists of 45% debt and a balance of common equity. the firm uses CAPM to estimate the cost of equity and does not except to issue and new common stock. Calculate the company's component cost of debt. please show work
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