A company has 2 million shares outstanding that are currently priced at $4 each and have a beta of 1.3. Five years ago the company issued bonds with a total face value of $3 million. One bond has a face value of $250,000. The bonds have a coupon rate of 3% p.a. and coupons are paid every six months. The bonds mature in fifteen years from today. The bonds currently yield 4% p.a., the market return is 7% p.a., the risk-free return is 2% p.a., and the company tax rate is 30%.
What proportion of the firm's capital structure is equity?
SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE
WEIGHT OF EQUITY = 0.7502 OR 75.02%
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