Amazon has 20,000 bonds outstanding, each with a face value of $1,000. 13,000 of the 20,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%. 7,000 of the 20,000 bonds pay an annual coupon of 9% p.a. with 12 years left to maturity and an effective annual yield to maturity of 8%. The most recent coupon for both types of bonds have just been paid. Amazon effective tax rate is 35%. Amazon has 10 million ordinary shares outstanding which are currently trading at $4 per share. Amazon’s beta is 1.5, the risk-free rate is 5%, and the expected return on the market portfolio is 15%. Using the capital asset pricing model to estimate the cost of equity, what is Amazon’s after-tax weighted average cost of capital? (Round to the nearest two digits)
Amazon has 20,000 bonds outstanding, each with a face value of $1,000. 13,000 of the 20,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%. 7,000 of the 20,000 bonds pay an annual coupon of 9% p.a. with 12 years left to maturity and an effective annual yield to maturity of 8%. The most recent coupon for both types of bonds have just been paid. Amazon effective tax rate is 35%. Amazon has 10 million ordinary shares outstanding which are currently trading at $4 per share. Amazon’s beta is 1.5, the risk-free rate is 5%, and the expected return on the market portfolio is 15%. Using the capital asset pricing model to estimate the cost of equity, what is Amazon’s after-tax weighted average cost of capital? (Round to the nearest two digits)
Chapter6: Fixed-income Securities: Characteristics And Valuation
Section: Chapter Questions
Problem 15P
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Question
Amazon has 20,000 bonds outstanding, each with a face value of $1,000. 13,000 of the 20,000 bonds pay a semi-annual coupon of 6% p.a. with 10 years left to maturity and an effective annual yield to maturity of 7%. 7,000 of the 20,000 bonds pay an annual coupon of 9% p.a. with 12 years left to maturity and an effective annual yield to maturity of 8%. The most recent coupon for both types of bonds have just been paid. Amazon effective tax rate is 35%. Amazon has 10 million ordinary shares outstanding which are currently trading at $4 per share. Amazon’s beta is 1.5, the risk-free rate is 5%, and the expected return on the market portfolio is 15%. Using the capital asset pricing model to estimate the cost of equity , what is Amazon’s after-tax weighted average cost of capital? (Round to the nearest two digits)
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