Question
Use the weighted average bond yield for your required return. The total market value of debt that company A is expected to have going into
Use the weighted average bond yield for your required return. The total market value of debt that company A is expected to have going into this investment is $120M, which includes the impact of the $40M to be paid off this year that has not been included in the financial statements. The current outstanding debt has an interest rate of 8%, but companyA is refinancing $50M of the debt at a lower interest rate of 6%. All of the $120M in debt is in the form of bonds. Ignore income tax effects when calculating the required return (i.e., do not take the after-tax cost of debt). Use current interest rates as a proxy for bond yield.
What is the bond yield to utilize as your required return, show your work?
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