Thorpe and Company is currently an all-equity firm. It has 3 million shares selling for $28 per share. Its beta is 0.85, and the current risk-free rate is 2.5%. The expected return on the market for the coming year is 13%. Thorpe will sell corporate bonds for $28,000,000 and retire common stock with the proceeds. The bonds are twenty-year semiannual bonds with a 10% coupon rate and $1,000 par value. The bonds are currently selling for $1,143.08 per bond. When the bonds sell, the company's beta will increase to 0.95. What was Thorpe and Company's WACC before the bond sale? Hint: The weight of equity before selling the bond is 100%.

Thorpe and Company is currently an all-equity firm. It has 3 million shares selling for $28 per share. Its beta is 0.85, and the current risk-free rate is 2.5%. The expected return on the market for the coming year is 13%. Thorpe will sell corporate bonds for $28,000,000 and retire common stock with the proceeds. The bonds are twenty-year semiannual bonds with a 10% coupon rate and $1,000 par value. The bonds are currently selling for $1,143.08 per bond. When the bonds sell, the company's beta will increase to 0.95. What was Thorpe and Company's WACC before the bond sale? Hint: The weight of equity before selling the bond is 100%.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter6: Fixed-income Securities: Characteristics And Valuation

Section: Chapter Questions

Problem 15P

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