A firm has 12,500 shares of stock outstanding that sell for $40
each. The book value of equity is $200,000. The firm has also
issued $300,000 face value of 10-year annual coupon bond with a 4%
coupon rate. The yield-to-maturity of this bond is 7%. There is a
comparable stock currently trading at $41.67, with next year's
dividend forecast of $5, and a constant-growth rate of 3%. The tax
rate is 21%.
a) What are the market values of the firm's bond and equity?
b) What are the estimates of the firm's cost of debt and cost of
equity?
c) What is the WACC for this firm?
Get Answers For Free
Most questions answered within 1 hours.