The market value of Lays Corporation's equity is 50 million $ and the market value of its debt is 27 million $. The current cost of debt for the Co is 3.5%. The beta of the company's common stock is 0.8, the required return for the market is 8% and the risk-free rate is 2%. If we assume no taxes, what is the company's cost of capital (WACC)?
The market value of Lays Corporation's equity is 50 million $ and the market value of its debt is 27 million $. The current cost of debt for the Co is 3.5%. The beta of the company's common stock is 0.8, the required return for the market is 8% and the risk-free rate is 2%. If we assume no taxes, what is the company's cost of capital (WACC)?
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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Transcribed Image Text:The market value of Lays Corporation's equity is 50 million $ and the market value of its debt is 27 million $. The current cost of debt
for the Co is 3.5%. The beta of the company's common stock is 0.8, the required return for the market is 8% and the risk-free rate is
2%. If we assume no taxes, what is the company's cost of capital (WACC)?
A 6.80%
B 4.60%
5.64%
D) 3.30%
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