Question
Your task is to find the cost of capital (WACC) for a company. The company has two sources of capital available. The marginal tax rate
Your task is to find the cost of capital (WACC) for a company. The company has two sources of capital available. The marginal tax rate for the company is 25%.
Common stock: the company has 150 000 shares outstanding with current market value equal to 50 euros. You may assume, that the current risk free interest rate is 1.5% and the companys beta is equal to 1.50. The markets are expected to provide 12% (e.g. Rm) a year in the near future.
Debt 1: The company has issued 2 000 coupon bonds with par value of 5 000 euros. These bonds carry 6% annual coupon rate but currently offer 4% yield to investors. The bonds will be redeemed exactly 6 years from now.
Debt 2: The company has also recently obtained secured financing from the bank. The current loan balance is 5.22 million euros and the annual interest charged by bank is 2.75%.
Questions:
Estimate the capital structure weights for each source and required rate of return for each source when necessary.
Find the cost of capital (WACC) for the company
Please describe shortly how possible increase in the cost of capital could influence a company
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