Question
The firm is 55% equity financed; shares currently trade at $37.00 and do not pay a dividend. Debt capital is provided by a single issue
The firm is 55% equity financed; shares currently trade at $37.00 and do not pay a dividend. Debt capital is provided by a single issue of bonds (20 year, $1,000 par value, $82.50 annual coupon) currently trading at $1,175. The firms beta is 1.25. Their traditional hurdle rate has been 12%, though the rate has not been reviewed in many years. Over the years, shareholders have come to expect a 10% return. Their corporate tax rate is 25%. Treasury securities are yielding 5.25%. The market rate of return on equities is 9.25%.
Calculate the firms Weighted Average Cost of Capital. show all formulas and work
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