Calculate the company component cost of debt

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Reference no: EM131594618

The company you work for wants you to estimate the company's WACC: but before you do so, you need to estimate the cost of debt and equity. You have obtained the following information. (1) The firm's non-callable bonds mature in 20 years, have an 8.00% annual coupon, a par value of exist1,000, and a market price of exist1, 225.00. (2) The company's tax rate is 40%. (3) The risk-free rate is 4.50%, the market risk premium is 5.50%, and the stock's beta is 1.20. (4) The target capital structure consists of 35% debt and the balance is common equity. The firm uses the CAPM to estimate the cost of equity, and it does not expect to issue any new common stock. Calculate the company's component cost of debt.

Reference no: EM131594618

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