Arc Media has 30 year debt outstanding worth $400 million. The bonds are currently trading at a price of $1,055 and have a coupon rate of 7% paid semi-annually (assume face value of the bond is $1,000). The company's stock price per share is $50and it has 10 million shares outstanding. The tax rate is 34%. The equity beta of the firm is 1.2 and the risk-free rate and market risk premium are 4% and 6%, respectively.
- Estimate the cost of debt for this firm.
- What is the weighted average cost of capital (WACC) for this firm?
- If the company were to become unlevered, i.e., issue equity to buy back all of its debt, what would be its cost of capital after this restructuring was completed?