Question
Watergate has a beta of 1.25. The market risk premium is 10% and the risk-free rate is 2.5%. ABC Corp. has 1 million outstanding bonds
Watergate has a beta of 1.25. The market risk premium is 10% and the risk-free rate is 2.5%. ABC Corp. has 1 million outstanding bonds trading at $100 currently. ABC Corp. has 20 million shares outstanding trading at $20. What is the weighted average cost of capital for ABC Corp. if the yield to maturity of its bond is 10%? Assume that the corporate tax rate is 0%.
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Financial Management Theory and Practice
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
2nd Canadian edition
176517308, 978-0176517304
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