Question
You need to estimate the cost of capital of Home Entertainment. The company tax rate is 21%, the T-bill rate is 2% and the market
You need to estimate the cost of capital of Home Entertainment. The company tax rate is 21%, the T-bill rate is 2% and the market risk premium is 5%. The company has a beta of 1.2. You also find recently this companys semi-annual coupon bond is traded as $1100, given the face value of $1000, the coupon rate is 4%, and the maturity is in 15 years. The company stock is currently traded at $20 per share, and there are 1.5 million shares outstanding. The market value of total debt is $20 million.
1) What is the cost of equity?
2) What is the after-tax cost of debt?
3) What is the capital structure weight of equity and bond?
4) What is the weighted cost of capital (WACC) for Home Entertainment?
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