QUESTION #2 (10 points) AM Gen Corp. has $250 million of bonds at par value outstanding that were recently issued. The bonds have a stated rate of 6.5% and a yield to maturity of 797%. They are currently traded in the market at 90% of par value, that is, the market value of a bond is $900. The company is publicly traded and has 20 million shares outstanding that sell for $25.00 per share. The stock's beta is 1.35 and the risk-free rate is 2.0%. The expected return on the stock market is 8.5% and AM Gen's relevant tax rate is 25% 1) What is the after-tax cost of debt that is used in the calculation of the weighted cost of capital? 2) What is the cost of equity? 3) What are the weightings to be used in the calculation of the weighted cost of capital? 4) What is the weighted cost of capital FILL IN THE GRAY AREAS TO GET CREDIT 1) What is the after-tax cost of debt that is used in the calculation of the weighted cost of capital? (2 points) 9 After-tax cost of debt 0 1 2) What is the cost of equity? (4 points) 22 Cost of equity 23 34 3) What are the weightings to be used in the calculation of the weighted cost of capital? (2 points) 25 Market Value Weight 26 Debt 27 21 Equity 29 30 ) What is the weighted cost of capital? (2 points) 31 32 WACC 33 34 35 36