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Default spreads described on the last page of the exam

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You are ealeulating the cost of capital for ABC corp. The ?rm'e equity has aboolr value of $600 million and a market value of $1 billion. The ?rm's debt consists of operating leases with a debt value of $500 million and two bonds. The ?rst band is a weight 30-year bond with book value equal to $200 million and market value equal to $125 million. The secondbond is a zero-coupon convertible bond with 10~years to maturity, a face value of $500 million, and a market value of $400 million. The ?rm has a debt rating ofBBB+ and has a marginal tax rate of 35%. You aasmne a market risk premium of4.5% and estimate the Beta ofthe ?rm to be 1-8- Based on the 10-year Treasury Bond yield, you aaemne a risk-?ee rate of5.0%. Using ?ee default spreads described on the last page of the exam, calculate the east ofdeht for this ?rm.

Reference no: EM131436553

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