If the financial Manager of Evergreen wants to decrease its cost of capital by adding more debt to its capital structure and arrive at a debt-equity ratio of 0.60. If its debt is in the form of a 6% semiannual bond issue outstanding with 15 years to maturity. The bond currently sells for 95% of its face value of $1000. On the other hand, suppose the risk-free rate is 3% and the market portfolio has an expected return of 9% and the company has a beta of 2. If the tax rate is 40%. Question 1  Calculate the company,s after-tax cost of debt. Question 2  Calculate the company,s cost of equity. Question 3  What would be the company’s overall cost of capital (WACC) at the targeted capital structure of debt equity ratio of 0.60?

You Answered orrect Answer A company is promising a coupon payment of $46 in 2.03 years. A risk free government bond of the same maturity is yielding 1.66% per year. The credit spread for the promised payment by the company is 1.24% per year. Both the yield and the spread are stated on a continuously compounded basis. What is the present value of the expected loss on the promised payment? 1.11 margin of error +/-50

Km for the following Individual or component costs of capital) Your firm is considering a new investment proposal and would like to calculate its weighted average cost of capital. To help in this compute the cost of capital for the a. A bond that has a $1,000 par value (face value) and a contract or coupon interest rate of 11.4 percent mat is paud semiannually. The bond is currently selling for a price of $1,121 and will mature in 10 years The firm's tax rate is 34 percent b. If the firm's bonds are not frequently traded, how would you go about determining a cost of debt for this company? A new common stock issue that paid a $174 dividend last year. The par value of the stock is $15, and the firm's dividends per share have grown at a rate of 81 percent per year. This growth rate is expected to continue into the foreseeable tuture The pnce of this stock is now $27 12 d. A preferred stock paying a 10.7 percent dividend on a $126 par value The preferred shares are currently selling for…

A zero-coupon bond with a market-beta of 0.2 promises to pay $1,000 in the first year. However, it may default and pay nothing with probability 0.09. If the risk-free rate is 4%, the equity premium is 6.1%, and the CAPM is correct, what would be the bond price today?