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Cost of capital assignment

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Cost of Capital Assignment

1.) A company issued bonds with a coupon rate of 6%, paid semiannually, and matures in 5 years. The bonds are currently priced at $1,063.25. The company's tax rate is 25%.

a. What is the company's before-tax cost of debt?

b. What is the company's after-tax cost of debt?

2.) A company has stock currently trading at $76.33 per share. The company last paid a dividend of $3.20 per share and it is expected to grow at a constant 4% rate. What is the company's cost of equity?

3.) The beta of a company's stock is 1.2 and the current risk-free rate is 2%. If the market's expected return is 10%, what is the cost of equity for the company?

4.) A company has several divisions and the overall company WACC is estimated to be 9%. The estimated beta for one of the divisions of the company is 1.5 and the market risk premium is currently 7%. If the risk-free rate is 3%, should the company's WACC be used for the division? Explain.

5.) A company has 50,000 bonds outstanding with a price of $1,025. The company also has 1 million shares outstanding that are trading at $40 per share. Calculate the weight debt and equity for the firm in its capital structure.

6.) A company's bonds have a yield to maturity of 5.5% and their stockholders require an 11% rate of return. The company's tax rate is 20%. Based on current market values, the weight of equity in the capital structure is 60% and the weight of debt is 40%. What is the company's weighted average cost of capital (WACC)?

Reference no: EM133116945

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