Question

A corporation has 9,000 bonds outstanding with a 6% coupon payable annually, 8 years to maturity,...

A corporation has 9,000 bonds outstanding with a 6% coupon payable annually, 8 years to

maturity, a $1,000 face value, and a $1,100 market price.

The company’s 450,000 shares of common stock sell for $25 per share and have a beta of 1.5.

The risk free rate is 4%, and the market return is 12%.

Assuming a 40% tax rate, what is the company’s cost of equity? What is the company’s after-tax

cost of debt? What is the company’s WACC?

Homework Answers

Answer #1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

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