Estimate your firm's Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.6%, the market risk premium is 5.4%, and the corporate tax rate is 21%. ØDebt: . Total book value: $10 million Total market value: $18 million Coupon rate: 5% Yield to Maturity: 4% Ø Common Stock: Total book value: $12 million Total market value: $16 million Beta 1.1 ØPreferred Stock: Total book value: $1 million Total market value: $6.5 million

Estimate your firm's Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.6%, the market risk premium is 5.4%, and the corporate tax rate is 21%. ØDebt: . Total book value: $10 million Total market value: $18 million Coupon rate: 5% Yield to Maturity: 4% Ø Common Stock: Total book value: $12 million Total market value: $16 million Beta 1.1 ØPreferred Stock: Total book value: $1 million Total market value: $6.5 million

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter14: Security Structures And Determining Enterprise Values

Section: Chapter Questions

Problem 1hM

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Estimate your firm’s Weighted Average Cost of Capital. Assume that the current risk-free rate of interest is 3.5%, the market risk premium is 5%, and the corporate tax rate is 21%. Ø Debt: • Total book value: $10 million • Total market value: $12 million • Coupon rate: 6% • Yield to Maturity: 5% Ø Common Stock: • Total book value: $15 million • Total market value: $20 million • Beta = 1.1 Ø Preferred Stock: • Total book value: $2 million • Total market value: $2.5 million • Price per share: $20 • Dividend per share: $1.50 What is your firm’s Weighted Average Cost of Capital (input as a raw number, i.e. if your answer is 7.1%, input 7.1)?
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