Hoosier Manufacturing (HM) has 20,000 bonds outstanding with a 6.30 percent coupon rate (semi-annual coupon payments) and 12 years left to maturity. The bonds sell for $1028.50. HM’s common stock has a beta of 0.8. The 10-year Treasury-Bond rate is currently 2.1 percent, and historically, the market has earned 7% more per year than the 10-year Treasury rate. The firm has 1,000,000 shares of common stock outstanding at a market price of $36.48 a share (book value of $12 per share). The company’s marginal tax rate is 35 percent.
a. What is the before-tax cost of debt and what is the after-tax cost of debt?
b. What is the cost of common stock?
c. What is the weighted average cost of capital for Hoosier Manufacturing?
SHOW FORMULAS