Consists of bonds and common stock equity

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Reference no: EM131606255

The capital structure of Truman Industries, Inc. consists of bonds and common stock equity. TI’s tax rate is 30%. The details on the various components of its capital structure are as follows:

Bond:

Type: Fixed Semi-annual Coupon, Non-callable

Maturity: 15 Years

Coupon rate: 8.00%

Par Value: $1,000

Current price: $950

Common Stock:

Beta: 1.2

Risk free rate: 4.0%

Expected return of the market: 12.00%

a) What is the after-tax cost of debt of Bond?

b) What is the after-tax cost of equity of the Common Stock of TI?

c) Truman’s target capital structure consists is 60% debt with remainder in equity financing. Using costs of debt and equity in two parts above find TI’s WACC.

Reference no: EM131606255

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