Answered step by step
Verified Expert Solution
Question
1 Approved Answer
c) XYZ Inc. has decided upon its target debt/equity ratio to be 0.6. The financial manager is calculating the cost of capital based on this
c) XYZ Inc. has decided upon its target debt/equity ratio to be 0.6. The financial manager is calculating the cost of capital based on this target capital structure. If the company has a bond with 15 years to maturity, a semi-annual coupon rate of 6%, a par value of $1,000 and currently sells for 95% of par value. The company's stock beta is 2, the expected return on the market is 9%, and the risk-free rate is 3%. Calculate: i) The company's cost of equity ii) The company's after-tax cost of debt (if the tax rate is 35%) iii) The overall company's cost of capital (WACC) at the target debt/equity ratio of 0.6
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started