Use the Questions below to refer to the following data
- The expected return on the market is 12%
- The risk-free rate is 3.5%
- The corporation has a current stock price of $65. There are 15 million shares outstanding. The beta for the stock is 1.6
- The corporation has a plowback ratio of 40%
- The corporation has three difference bond issues as follows:
-->8% coupon bonds with face value of $1000 that mature in 10 years. These bonds have a yield to maturity of 6%. There are 250,000 of these bonds
--> zero-coupon bonds with face value of $1000 that mature in 3 years. These bonds have a yield to maturity of 3%. There are 300,000 of these bonds
--> 10% coupon bonds with face value of $1000 that mature in 15 years and are currently trading at face value. There are 500,000 of these bonds.
- The corporation has an average tax rate of 30%
- The corporation has no preferred stock.
1. What is the cost of equity for the corporation?
2. What is the bond value for the 8% coupon bonds outstanding? What are current yield and capital gains yield?
3. What is bond value for the zero-coupon bonds? What are current yield and capital gains yield?
4. What is the cost of debt for the corporation?
5. Calculate WACC using market values to obtain weights.