Find the cost of debt and equity the shares of debt and


The company has currently 20 000 shares outstanding. The book value per share is $20. The stock is currently trading at the P/B ratio of 2.0; P/E= 14 and EV/EBITDA=7.5. It is also known that the risk free rate is 2%, the beta of the stock is 2.0 and the market risk premium over risk free rate is equal to 5%. You may assume that the marginal tax rate on profits is 25%.

The company is going to issue 6 000 coupon bonds with the par value of $100 per bond, 6% annual coupon rate. Similar bonds currently trade at 4% yield level . The bonds will mature exactly 8 years from now.

Find:

a) Cost of debt and equity

b) The shares of debt and equity in capital structure

c) Find WACC and interpret your result?

Request for Solution File

Ask an Expert for Answer!!
Financial Management: Find the cost of debt and equity the shares of debt and
Reference No:- TGS02716392

Expected delivery within 24 Hours