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Calculate the cost of debt of the company

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Question - Orange Corp has 1 million shares outstanding, and the stock is currently trading at $10 per share. The company has two different bonds outstanding. First, it has 5000 zero coupon bonds outstanding. Each zero coupon bond has a face value of $1000, will mature in 5 years, and is currently priced at 65% of face value. Second, the company has 5000 coupon paying bonds outstanding. Each coupon paying bond is currently priced at $940.00, and the YTM is 11%. You have decided to calculate the cost of equity using the SML equation. You have estimated that the risk-free rate is 5%, and the expected rate of return on the market portfolio is 10%. You also have estimated that the equity beta of the company is 2.5. Finally, the company faces a tax rate of 30%. Using the information given, calculate the cost of capital (WACC) of Orange Corp. Using the information provided above, calculate the cost of debt of the company and calculate the cost of equity of the company.

Reference no: EM133052523

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