Answered step by step
Verified Expert Solution
Question
1 Approved Answer
You have the following information about a company: Debt: 10,000 2.5% bonds with ten years to maturity. The bonds sell for $875 and the bonds
You have the following information about a company: Debt: 10,000 2.5% bonds with ten years to maturity. The bonds sell for $875 and the bonds make semi- annual payments Equity 150,000 shares outstanding selling for $45 per share. The beta is 1.9. The firm paid a dividend of $2.00 last year Market: There is a 5\% market risk premium. The risk free rate is 3%. The corporate tax rate is 40%. a ) Given the above information, calculate the firm's WACC(5 marks ) b ) What is the current yield on the company's bonds? (1 mark) c ) If the Bank of Canada increases interest rates tomorrow, what will happen to the price of the bond? (1 mark) d ) is the firm more or less risky than the market? (1 mark)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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