Starlight Foods went public by issuing 1 million shares of common stock @ $25 per share. The shares are currently trading at $30 per share. Current risk free rate is 4%, market risk premium is 8% and the company has a beta coefficient of 1.2.
During last year, it issued 50,000 bonds of $1,000 par (FV) paying 10% coupon annually maturing in 20 years. The bonds are currently trading (PV)) at $950.
The tax rate is 30%. Calculate the weighted average cost of capital.
Answer the following questions:
1) Calculate the total current Value of the Equity
2) Calculate the total current Value of the debt
3) Calculate the current value of the total capital for the firm
4) Calculate the weight of Equity in the capital structure
5) Calculate the weight of Debt in the capital structure.
6) Estimate the cost of debt by calculating the Yield to maturity
7) Estimate the cost of equity by the CAPM model.
8) Finally estimate the Weighted Average Cost of Capital (WACC) for the firm.