A firm has 10,000,000 shares of common stock outstanding, each with a market price of $15.00 per share. It has 80,000 bonds outstanding, each selling for $1020. The bonds mature in 15 have a coupon rate of 9%, and pay coupons semi-annually. The firm's equity has a beta of 1.9, and the expected market return is 10%. The tax rate is 30% and the risk-free rate is 4%. years, a) What is the total market value of common stocks? b) What is the total market value of bonds? c) What is the cost of equity? d) What is the cost of debt? What is the cost of capital for the firm?|
A firm has 10,000,000 shares of common stock outstanding, each with a market price of $15.00 per share. It has 80,000 bonds outstanding, each selling for $1020. The bonds mature in 15 have a coupon rate of 9%, and pay coupons semi-annually. The firm's equity has a beta of 1.9, and the expected market return is 10%. The tax rate is 30% and the risk-free rate is 4%. years, a) What is the total market value of common stocks? b) What is the total market value of bonds? c) What is the cost of equity? d) What is the cost of debt? What is the cost of capital for the firm?|
Chapter12: The Cost Of Capital
Section: Chapter Questions
Problem 23P
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