Little Lemon Co. is identifying the value of its equity using the enterprise valueapproach as they have never issued dividends to-date because the Company isstill at its early stages. With this, they have the following available information: The government's real free rate for its debt securities is estimated at 3.5% withan estimated inflation premium of 1.5%. The target capital structure of Little Lemon is at 60% debt and 40% equity Little Lemon was able to determine that its cost of debt is estimated as: With 3 years maturity - 6.50% With 4 years maturity - 7.0% With 5 years maturity - 8.0% The following are the information about the current debts issued by Little Lemon A 3-year maturity instrument carries a Php500,000 face value and 8.0%coupon A 5-year maturity instrument carries a Php500,000 face value and 8.0%coupon Considering the current crisis, equity investors generally demand a 3.5%premium over government securities Little Lemon's estimated beta is at 1.2 How much is the weighted average cost of debt? Hint: Use market values of the debt instruments in determining the weight.
Little Lemon Co. is identifying the value of its equity using the enterprise valueapproach as they have never issued dividends to-date because the Company isstill at its early stages. With this, they have the following available information:
The government's real free rate for its debt securities is estimated at 3.5% withan estimated inflation premium of 1.5%.
The target capital structure of Little Lemon is at 60% debt and 40% equity
Little Lemon was able to determine that its cost of debt is estimated as:
With 3 years maturity - 6.50%
With 4 years maturity - 7.0%
With 5 years maturity - 8.0%
The following are the information about the current debts issued by Little Lemon
A 3-year maturity instrument carries a Php500,000 face value and 8.0%coupon
A 5-year maturity instrument carries a Php500,000 face value and 8.0%coupon
Considering the current crisis, equity investors generally demand a 3.5%premium over government securities
Little Lemon's estimated beta is at 1.2
How much is the weighted average cost of debt?
Hint: Use market values of the debt instruments in determining the weight.
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