8 Q) Suppose a firm has 42.50 million shares of common stock outstanding ata price of $27.96 per share. The firm also has 280000.00 bondsoutstanding with a current price of $1,194.00. The outstanding bonds haveyield to maturity 7.87%. The firm's common stock beta is 0.92 and thecorporate tax rate is 36.00%. The expected market return is 10.55% andthe T-bill rate is 5.91%. Compute the following:-Weight of Equity of the firm-Weight of Debt of the firm-Cost of Equity of the firm-After Tax Cost of Debt of the firm-WACC for the Firm

The cost of capital is measured by weighted average cost of capital and is minimum rate of return…

Answered: 2) Suppose a firm has 42.50 million…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume the risk-free rate on long-term Treasury bonds is 6.04%. Assume also that the average annual return on the Winslow 5000 is 11% as the expected return on the market. Use the SML equation (i.e., CAPM) to calculate the two companies' required returns. Bartman Industries Reynolds Inc. Year Stock Price Dividend Holding period return Stock Price Dividend Holding period return 2020 $17.25 $1.15 $48.75 $3.00 2019 14.75 1.06 52.30 2.90 2018 16.50 1.00 48.75 2.75 2017 10.75 0.95 57.25 2.50 2016 11.37 0.90 60.00 2.25 2015 7.62 55.75
Q) Suppose a firm has 38.40 million shares of common stock outstanding at a price of $39.75 per share. The firm also has 255000.00 bonds outstanding with a current price of $1,062.00. The outstanding bonds have yield to maturity 6.87%. The firm's common stock beta is 2.25 and the corporate tax rate is 36.00%. The expected market return is 13.35% and the T-bill rate is 2.37%. Compute the following: -Weight of Equity of the firm -Weight of Debt of the firm -Cost of Equity of the firm -After Tax Cost of Debt of the firm -WACC for the Firm
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